Finance Isn't Ready for Loss of the ‘World's Most Important Number’

(Bloomberg) -- The “world’s most important number” is due for replacement after 2021, but the financial-services industry is in danger of not being ready, according to a report from consultants Oliver Wyman.

Industry groups have taken steps to ease the transition to an alternative to Libor, and derivatives that reference substitute rates are now being traded, according to the report. Yet things are moving too slowly, partly because awareness of the issue is concentrated among large banks, it said.

The industry risks operational, financial and market stability impacts from missing the deadline for the replacement of the London interbank offered rate, according to the report. Widespread use of alternatives will be necessary to build liquidity, but “cash products using the new rates are almost nonexistent,” it said.

Regulators are concerned that Libor, a reference rate on which $170 trillion of swap contracts are still based, may disappear without the industry being prepared for the move to alternative benchmarks. Around one third of those contracts mature after 2021, the date Andrew Bailey, head of the U.K.’s Financial Conduct Authority, has set for the withdrawal of regulatory support.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Paul Armstrong, Andrew Blackman

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