IBOR Transition – A More In-Depth Look

As is well-known by now, the Financial Stability Board (FSB), the Bank of England (BOE), the Central of Bank of Japan, the Federal Reserve of the USA, the Swiss Central Bank, and the European Central Bank have been leading the initiative to move away from the London Interbank Offered Rate (‘LIBOR’) to alternative overnight risk-free rates (‘RFR’), starting from 2022. This will have an impact on financial transactions worth over 350 trillion dollars. We have decided to write a series of papers on this topic to share an understanding of the underlying issues, its impact on accounting, on the financial market, financial instruments, and market liquidity, fallback language, risk models, hedging strategies, and a whole range of allied issues. In this first paper, we provide a background on the LIBOR transition (typically called ‘IBOR Transition’) and its fundamentals.