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LIBOR Transition Data: Catching the Wave

Updated: Jan 15, 2021

Active policy formation processes provide excellent examples of how alternative data sourced from the public policy process can deliver material informational advantages to early adopters. Technical policy processes increase informational asymmetries because most media outlets will not cover complicated new developments.

Monday's flurry of LIBOR-related policy activity in the end encompassed ten policymakers in Asia, Europe and the United States. The scale and scope of activity suggests strongly that initiatives were coordinated. Media coverage only addressed about 30% of the activity underway this week.

PolicyScope Platform users on Monday morning immediately saw the start of global wave using our alternative data that measures daily global momentum for specific issues. The Banking lexicon registered unusually high activity, outpacing even COVID-19 policy initiatives.

The composition within the Banking lexicon showed that LIBOR constituted 100% of activity in the last 24 hours.

PolicyScope Platform users were thus prepared for the ensuing intraday activity. That night, PolicyScope Risk Monitor readers received a quick analysis of global policy activity as markets opened for trading in Asia on December 1.

Policymakers continue to intensify the shift away from LIBOR, consistent with announcements and analysis released earlier this year by the Financial Stability Board and the G20, as the time series data below illustrates:

Who did what exactly? See your high level synopsis below of actions taken within a roughly 18 hour window (listed in roughly chronological order). One key element visible to those that read the underlying documents is that phase-out plans are starting to evidence divergence with respect to timing that stretches from June 2023 to 2025 while a few key inflection points remain during 2021:

  • Australia: ASIC issued regulatory guidelines spelling out its expectations regarding risk management for conduct risk regarding the LIBOR transition.

  • Bank of Japan: Released a summary of feedback received from an early consultation regarding the benchmark transition. Less than 30 entities submitted formal comments, the majority of which largely supported the proposal that policymakers first work on term reference rates and overnight compounding risk free rates, followed by committee-recommended rates, the ISDA fall backs, and rates suggested by issuers.

  • European Parliament and European Council: Announced agreement on their amendments to the Benchmarks Regulation that will authorize the European Commission to designate a replacement for LIBOR. They also agreed to permit EU financial institutions to use "third country" benchmarks until 31 December 2023. This timing shift sets up a conflict with the UK's deadline of 2025.

  • European Commission: Issued a statement welcoming the agreement between the Council and the Parliament.

  • Financial Conduct Authority (UK): Issued a statement welcoming the next phase of the LIBOR transition (proposals by the LIBOR Administrator, due in December) and pledging to work closely with US regulators regarding USD LIBOR contracts specifically.

  • USA: Federal Reserve, OCC, FDIC together + Federal Reserve solo: Issued a joint statement not only supporting the extended deadline for legacy contracts but also making clear that writing USD LIBOR after December 2020 will constitute a safety and soundness issue. The move is intended to serve as a red flag for compliance officers. The next step will be enforcement actions and fines during 2021 if/when they find contracts being written that reference USD LIBOR. U.S. policymakers also chose a different end date (June 2023) from the UK (2025) and the EU (December 2023).

Access to the alternative data in our PolicyScope Platform and the altering function served by our daily PolicyScope Risk Monitor enable our customers get ahead of the policy momentum regarding LIBOR and other policy issues. They move past headline risk to acquire advanced data-driven nowcasting capabilities that support better decisions.

PolicyScope data is available through the Bloomberg Enterprise Access Point.

Customized widgets and dashboards are available via API HERE.

Analytical scenario analysis (The Scenarios -- twice monthly) and daily global macro analysis of platform data (The PolicyScope Risk Monitor) are also available.

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