In July 2014 the Financial Stability Board (FSB) published a report entitled Reforming Major Interest Rate Benchmarks, which proposed recommendations, developed by the Official Sector Steering Group (OSSG), for enhancing existing benchmarks for key interbank unsecured lending markets (such as LIBOR, EURIBOR and TIBOR, collectively the “IBORs”), and to promote the development and adoption of nearly risk-free benchmark rates (RFRs) where appropriate.
The report recommended that:
- there should be a strengthening in existing IBORs and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data; and
- steps should be taken to develop alternative RFRs, given that there are certain financial transactions, including many derivatives transactions, that are better suited to reference rates that are closer to risk-free.
The FSB has now published an interim progress report on their recommendations. The interim report notes that the administrators of the most widely used IBORs have all taken major steps such as undertaking reviews of respective benchmark methodologies and definitions, data collection exercises and feasibility studies, consideration of transitional and legal issues, and broad consultations with submitting banks, users and other stakeholders.
The interim report also notes that OSSG members have made concrete progress in identifying potential RFRs. In particular, detailed data collection exercises have been undertaken in key markets, and work is now underway to identify potential RFRs, where these do not currently exist.
The OSSG will continue to monitor progress in implementing the FSB’s recommendations in the year ahead, and will prepare an updated progress report for publication by the FSB in July 2016.