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Last year, the UK's Financial Conduct Authority (FCA) announced that banks would no longer be compelled to support LIBOR past the end of 2021. As banks transition away from LIBOR, they will need to consider potential complications with existing credit agreements and ways to price and govern new credit agreements.
The threat of banks exiting after December 31, 2021 means that regulators will likely continue to push market participants, particularly large banks, to transition away from LIBOR. The December 31, 2021 date provides a relatively short timeframe for transitioning to LIBOR alternatives. The massive amount of economic activity tied to LIBOR creates the potential for significant value transfers between buy-side and sell-side participants if not handled correctly. Since 2014, regulators have been working with industry stakeholders to develop a uniform approach to the phase-out of LIBOR. Given the complexities, regulators and industry have not yet identified a consensus approach. Chatham has been participating in these efforts by engaging with regulators and participating in International Swaps and Derivatives Association (ISDA) working groups.
