Dropping the universal lending benchmark will impact everything your treasury touches. Here’s how you should prepare.
LIBOR, the much-criticized international wholesale lending interest rate, is going away at the end of 2021. Good riddance, say financial regulators and others who believe LIBOR was easily manipulated and proved itself unequal to the global financial crisis in 2008, in both its reliability and its accuracy.
For business and financial leaders, LIBOR’s demise means that no later than 2022, and likely well before then, they’ll have to reference a new benchmark for an estimated $200 trillion in financial contracts, from short-term bank loans to long-term infrastructure financing agreements. But few of those executives have thought through the implications of a shift that will affect nearly everything a corporate treasury touches, including swaps, financial hedging strategies, commercial contracts and even quarterly closes. Now is the time to start planning.