Asian Banking Finance: LIBOR transition ー A trigger for re-thinking IT platforms
The London Interbank Offered Rate (LIBOR) is a series of benchmark interest rates and has been called the “world’s most important number”. It is a globally recognized base rate for pricing loans, debt, and derivatives. As a key part of the financial services infrastructure, more than $240 trillion in products reference LIBOR.
As its underlying transactions have diminished, regulators have announced a target date to replace LIBOR and begun the process of identifying and creating alternative rates. However, these rates are structurally different from LIBOR, and it is unclear how existing products referencing it will change, and what new products will emerge. There is the possibility of significant customer and economic impact and uncertainty over how this will develop.
It may not be the ultimate goal, but in 2021 the global financial markets will experience a major transition. For APAC's financial markets, 2021 may still seem a long way off, but given the magnitude of the transition and its impact on financial markets, the timing is right for financial institutions to start mobilizing everything they need to do to prepare for it already.