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Janine Alexander
Partner
Banking Litigation & Dispute Resolution
The Bank of England (BoE) provides liquidity to market participants and lends to firms against a wide set of eligible collateral. To encourage market participants to move away from LIBOR, the BoE has announced new policies for the treatment of LIBOR-linked collateral in the BoE’s Sterling Monetary Framework lending operations. Specifically:
These milestones for LIBOR-linked collateral have recently been revised to account for the temporary disruption caused by the Covid-19 pandemic and resulting changes to the interim milestones announced by the Working Group on Sterling Risk Free Rate Transition (the Working Group) on 29 April 2020. In particular, the Working Group has announced that all new issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of Q1 2021 (previously end of Q3 2020).
Although the impact of the Covid-19 pandemic has delayed certain milestones, the date from which the BoE intends to apply a 100% haircut on LIBOR-linked collateral (i.e. implying effective ineligibility) remains 31 December 2021. This shows that the central assumption remains that firms cannot rely on LIBOR being published after the end of 2021.
13 July 2020
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