Libor transition to be most challenging for cash instrument contracts, BIS says

6 March 2019 8:26pm
Transitioning from Libor benchmarks to market-based rates will be especially troublesome for existing contracts in cash instruments such as mortgages, business loans, bonds and securitizations, the Bank for International Settlements said.

These $2.3 trillion in legacy contracts with a maturity date after 2021, like the larger amount of derivative contracts, are under pressure to be amended by adding risk-free rates in case scandal-plagued Libor ceases publication by then.

But, the BIS quarterly report yesterday said, “the transition appears to be more challenging for cash instruments due to their more bespoke nature. Unlike with derivatives, there is no body that could help coordinate on an overarching industry-wide solution.”

The 152-page report stressed the importance of these changes.