Collyer Bristow logo

SHORTER READ

Banking Litigation & Dispute Resolution

The BoE encourages market participants to move from LIBOR to risk-free rates with new policies for the treatment of LIBOR-linked collateral

SHARE

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:

  1. From 1 April 2021, the BoE will apply increasing haircuts on all LIBOR-linked collateral maturing after 31 December 2021. This means that the value of the LIBOR-linked collateral against which the BoE is lending will be reduced by an increasing percentage until the end of 2021. Haircuts are scheduled to reach 100% by 31 December 2021.
  2. From 1 April 2021, any LIBOR-linked collateral issued on or after that date and maturing after 31 December 2021 will be ineligible for use in the Sterling Monetary Framework.

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.

https://www.bankofengland.co.uk/markets/market-notices/2020/risk-management-approach-to-collateral-referencing-libor-may-2020

Authors

Latestfromtheteam

MoreofJanine'sInsights

You are contacting

Janine Alexander

Partner

janine.alexander@collyerbristow.com



    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):

    FINDING OUR ARTICLES OF INTEREST? SUBSCRIBE TO RECEIVE THE LATEST CONTENT DIRECT TO YOUR INBOX

    Subscribe now
    ExpandNeed some help?Toggle

    Get in touch

    Get in touch using our form below.