The Financial Stability Board (FSB) has published a report prepared by the Official Sector Steering Group (OSSG) of regulators and central banks on reforming major interest rate benchmarks.
In order to tackle transition issues arising from a move to an alternative rate, the OSSG recommends a multiple-rate approach that involves:
- strengthening the existing IBORS (the London Interbank Offered Rate, Euro Interbank Offered Rate and the Tokyo Interbank Offered Rate) and other potential reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data. The report refers to these enhanced rates as IBOR+; and
- developing alternative, nearly interest-risk free reference rates (RFRs).
The FSB has endorsed these recommendations and mandated the OSSG to monitor and oversee the implementation of the reforms.
The report sets out timelines for implementing the OSSG’s recommendations. In particular, IBOR administrators are expected to have consulted on any recommended changes relating to IBOR+ by the end of 2015 and central banks and supervisory authorities should work to implement at least one IOSCO-compliant RFR by 2016. The OSSG is expected to produce an interim progress report in 12 months’ time, with the final monitoring report due in 24 months’ time.
View Reforming major interest rate benchmarks, 22 July 2014