On 7 May 2020, the Bank of England (BoE) published a market notice in relation to its approach to collateral referencing LIBOR for use in the Sterling Monetary Framework (May notice).
In a previous market notice, issued on 26 February 2020, the BoE had announced that, from October 2020, it would increase haircuts progressively on LIBOR-linked collateral that it lends against, with haircuts scheduled to reach 100% at the end of 2021. In that market notice, it was stated that from 1 October 2020 any LIBOR-linked collateral issued on or after that date and maturing after 31 December 2021 would be ineligible for use in the Sterling Monetary Framework.
In the May notice, the dates from which the BoE will apply the increasing haircuts on LIBOR-linked collateral have been pushed back so that a 10% haircut will now apply from 1 April 2021 (previously 1 October 2020) and a 40% haircut will now apply from 1 September 2021 (previously 1 June 2021). The date from which a 100% haircut applies remains 31 December 2021.
Additionally, the May notice specifies that from 1 April 2021 (previously 1 October 2020) any LIBOR-linked collateral issued on or after that date and maturing after 31 December 2021 will be ineligible for use in the Sterling Monetary Framework. The change from 1 October 2020 to 1 April 2021 appears to tie in with the revised interim milestones issued by the Working Group on Sterling Risk-Free Reference Rates (RFRWG) on 29 April 2020.
Earlier this week in video diary number 14, Hannah Meakin gave an update on LIBOR, focussing on the RFRWG statement of 29 April 2020.