For the last 40 years IBOR (interbank offered rates, including LIBOR and later also EURIBOR) have been a fact of daily life in the financial services industry. They have been the benchmark for lending, hedge contracts, current accounts, valuation models etc. for a long time till the regulators, central banks and market participants decided to seek alternatives as from 2012.
Besides the switch to new reference rates, it now seems that alternative rates will be fixed afterwards based on a daily fixing component while the LIBOR Rates are now published at the beginning of each interest period.
Transitioning to alternative rates and calculation methods will be challenging, and it will have serious implications for both financial institutions as their customers on how lending and hedge contracts are priced and how treasurers manage risks and their working capital.
Although a lot of about detailed timing and specifications of the new reference rates is still unclear, we strongly recommend our clients to be pro-active and not to follow the ‘wait and see” approach as the impact is expected to be substantial and the demand for resources to support these changes will increase in the coming months.
Daniël Pluta: “Although this transition seems to be in the distant future, now is the time to start preparing! The impact can be huge….”
Enigma Consulting support both financial institutions and their clients to adapt to these new market circumstances. For financial institutions, Enigma Consulting provides project management support for the migration activities and client communication. For (corporate) clients, Enigma Consulting is performing impact analyses, that result in an action plan/ heat maps for the short and medium term. These action plans can then be used to prepare the organization for the expected changes and communicate with internal and external stakeholders such as your banks, market data suppliers, TMS & other systems suppliers and accountants.