The US Federal Financial Institutions Examination Council (FFIEC) has warned of potential risks ahead as the market transitions away from the London Interbank Offered Rate (Libor) benchmark to the Secured Overnight Financing Rate (SOFR) by December 2021.
In response to the impending transition, the US agency issued a letter on 1 July 2020 detailing the potential risks that may arise along with crucial measures that banking entities must put into place to prevent any downfalls. The transition will impact the derivatives market as there are more than US$350 trillion worth of contracts referring to Libor. In the structured products space, there are currently 1,339 live structures worth an estimated over US$14 billion, featuring the Libor benchmark
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