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MVA White Collar Defense, Investigations, and Regulatory Advice Blog: Never Waste a Crisis: How Coronavirus May Help Shape the LIBOR Transition

March 2020

Charlotte Financial Regulatory Advice and Response Member Neil Bloomfield‘s MVA White Collar Defense, Investigations, and Regulatory Advice Blog titled “Never Waste a Crisis: How Coronavirus May Help Shape the LIBOR Transition” was published on March 13.

The article

The transition away from LIBOR was born from the financial crisis.  For years regulators have been pushing for an alternative to the dominant market benchmark.  The underlying market was illiquid.  The rate was set by opinion, not transactions.  It was easily manipulated.  It was set by only the largest of financial institutions.  In the U.S., SOFR—the secured overnight funding rate—has been designated as the LIBOR replacement.  In many ways, it cures the ills of LIBOR.  The underlying market is liquid and the rate is set by actual transactions.  But in many ways it is wholly dissimilar to LIBOR.  Prime among these differences is that it does not reflect a bank’s cost of funds.  Many of us participating in the debate around the LIBOR transition have argued that in a crisis, this fundamental difference would create significant stress for financial institutions at a time when they could least manage it.  The current COVID-19 pandemic and the resulting economic turmoil may be about to test that theory just before LIBOR is about to disappear.

To view the complete blog article, please click here.