Swiss Watchdog Warns Banks of Risks in Replacing Libor Benchmark
Swiss Watchdog Warns Banks of Risks in Replacing Libor Benchmark
(Bloomberg) --
The Swiss financial sector faces a “substantial risk” if the country’s banks aren’t adequately prepared for the demise of the Libor benchmark, the financial market regulator said.
Finma’s analysis shows that “most banks have considerable catching up to do when it comes to replacing Libor,” according to a report published on Tuesday. “Despite progress, the market’s acceptance of alternative reference rates is still low.”
While for decades, the London Interbank Offered Rate provided a way to determine the cost of everything from mortgages to complex derivatives around the world, U.K. officials have given it an end date of 2021 in the wake of a manipulation scandal.
In Switzerland, financial industry and central bank officials have been trying to come up with an alternative, because franc-Libor rates underpin financial products worth trillions and are used to price about 80% of Swiss banks’ loans.
According to Finma, risks stemmed from contracts needing to be adapted, valuations needing to be adjusted as the underlying financial product changed, and systems and processes revised to account for the new reference rate.
“The consequences of an unprepared Libor-replacement can be great,” Finma said.
As part of the reference rate reform, the Swiss National Bank introduced a new policy rate earlier this year and scrapped its old target of three-month franc Libor.
To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jan Dahinten
©2019 Bloomberg L.P.
