The LIBOR manipulation scandal in 2008 led the Financial Stability Board (FSB) to recommend that alternative benchmark interest rates be developed for different currencies. Furthermore, after 2021, banks will no longer be required to participate in the LIBOR rate setting process. While this does not mean the discontinuation of LIBOR, possible weaker participation in the fixing process could make it unreliable. In view of the looming 2021 deadline, working groups in various jurisdictions are identifying alternative rates to transition away from interbank offered rates to overnight risk free rates.
For public debt managers, shifting to new benchmark interest rates might have various implications. For debt linked to LIBOR and for derivatives, there might be an impact on terms of costs and risks calculations. Operationally, public debt management offices might have to adjust their information systems, financial reports and/or make changes in their legal agreements with lenders and counterparts. It is also uncertain how the new reference yield curves will evolve, making for example decision making harder when considering issuing new floating rate debt.
In this webinar, Mr. Donald Lloyd Sinclair, Head of Asset Liability Management of the World Bank Treasury, provides a background for the transition to the new benchmark rates, how it impacts the World Bank’s clients, as well as its borrowing and investment operations. Mr. Celso Nozema, Financial Economist of the Institute of International Finance (IIF), discusses the risk management angle, touching upon the market risks that could come up, the impact on liquidity and the development of a yield curve.