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The End of Libor Is a $12 Trillion Headache for Loan Bankers

U.K. Business Leaders At CBI Annual Conference 2019
Photographer: Jason Alden/Bloomberg

The whole financial world is working to move away from Libor and other interbank lending benchmarks, which for decades have been used to set borrowing costs on bonds and loans, as well as products ranging from derivatives to credit cards. Since 2018, more than $150 billion worth of bonds have been sold using rates set by a new generation of benchmarks. The syndicated loan market is lagging far behind, with at least $12 trillion of deals needing to be replaced or rewritten so they follow a Libor alternative. There are no easy fixes in sight despite potential deadlines as early as this year.

Libor, or the London interbank offered rate, is a daily average of what banks say they would have to pay to borrow from one another. It forms the basis for floating-rate or variable loans and bonds. But ever since European and U.S. banks were found to have manipulated rates to benefit their own portfolios, the benchmark has been seen as tainted. Along with its interbank offered rate (Ibor) kinfolk -- such as Euribor for the euro and Tibor for the yen -- Libor is headed for history’s scrapheap, set to be abolished by the end of 2021. A Bank of England working group has proposed halting new lending using Libor in the third quarter of this year.