{"id":378,"date":"2021-10-13T14:30:11","date_gmt":"2021-10-13T18:30:11","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/bankinglaw\/?p=378"},"modified":"2021-10-13T12:05:46","modified_gmt":"2021-10-13T16:05:46","slug":"libor-transition-drama-continues-for-bsby","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/bankinglaw\/2021\/10\/13\/libor-transition-drama-continues-for-bsby\/","title":{"rendered":"LIBOR Transition: Drama Continues for BSBY"},"content":{"rendered":"

As Bloomberg and banks like Bank of America in the US and DBS Bank in Singapore<\/a> continue to push forward with BSBY<\/a>, IOSCO last month rattled its saber with a statement on credit sensitive rates<\/a>, highlighting the importance of choosing alternative financial benchmarks that are compliant with the IOSCO Principles<\/a>. The last volley in the continuing back and forth between regulators and proponents of new credit sensitive rates came in July, when Bloomberg tried<\/a> to address some of the volume and manipulation concerns raised<\/a> by SEC Chair Gary Gensler and others with BSBY.<\/p>\n

The IOSCO statement counters that with a caution that IOSCO compliance is not a one-time test, and even if trading volumes are sufficient for current volumes of loans in such benchmarks, loan volume should not be permitted to grow if it outpaces increases in underlying trading volumes and are unable to be resilient. BSBY is not mentioned by name, but it has been the primary subject of attention.<\/p>\n

Two weeks after IOSCO published its cautionary statement, Gensler spoke<\/a> at the ARRC\u2019s fifth session of The SOFR Symposium: The Final Year<\/a>, responding to Bloomberg\u2019s July report that it \u201ccould not address the main concern that the rate is built off of too thin a market.\u201d Gensler reiterated<\/u> that that he did not \u201cbelieve BSBY is, as FSB urged, \u2018especially robust,\u2019\u201d adding that, \u201cI don\u2019t believe it meets IOSCO\u2019s 2013 standards.\u201d<\/p>\n

Unless regulators back up their words with actions, this drama is mostly noise, and lenders are free to continue to make BSBY loans. Whether they will be successful will depend in part on whether borrowers perceive BSBY as a better deal. For legacy LIBOR loans, the spread adjustment<\/a> added to the interest rate to transition to SOFR has been set by market convention\u2014about 11.5 basis points for a 1 month term, 26bps for 3 months and 43bps for 6 months. This adjustment reflects that LIBOR is an unsecured rate that is sensitive to fluctuations in credit risk while SOFR is a secured, relatively stable \u201crisk free\u201d rate. Since BSBY is also based on unsecured transactions, there should not be a need to add much, if any, spread adjustment to transition from LIBOR to BSBY. This lower spread could be attractive to borrowers if they believe that over time, the variable credit sensitivity of BSBY will not cause the rate to rise, relative to SOFR, more than the fixed SOFR spread adjustment.<\/p>\n

Duane Morris\u2019 LIBOR Transition Team:\u00a0\u00a0Roger S. Chari<\/a>, Chair,\u00a0Joel N. Ephross<\/a>,\u00a0Amelia (Amy) H. Huskins<\/a>, and\u00a0Phuong (Michelle) Ngo<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

As Bloomberg and banks like Bank of America in the US and DBS Bank in Singapore continue to push forward with BSBY, IOSCO last month rattled its saber with a statement on credit sensitive rates, highlighting the importance of choosing alternative financial benchmarks that are compliant with the IOSCO Principles. The last volley in the … <\/p>\n

Continue reading “LIBOR Transition: Drama Continues for BSBY”<\/span><\/a><\/p>\n","protected":false},"author":481,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[253,240,238,259,383,381,248,433,247,250,430,431,432,252,426,425,428,427,227,228,243,236,245,241,256,257,206,168,266,429,237,271],"ppma_author":[348,346,360,353],"class_list":["post-378","post","type-post","status-publish","format-standard","hentry","category-general","tag-amelia-huskins","tag-amy-huskins","tag-arrc","tag-benchmark-replacement","tag-bloomberg","tag-bsby","tag-chari","tag-credit-sensitive-rates","tag-duane-morris","tag-ephross","tag-fsb","tag-gary-gensler","tag-gensler","tag-huskins","tag-international-organization-of-securities-commissions","tag-iosco","tag-iosco-compliant","tag-iosco-principles","tag-joel-ephross","tag-libor","tag-libor-replacement","tag-libor-transition","tag-london-interbank-offered-rate","tag-michelle-ngo","tag-ngo","tag-phuong-ngo","tag-roger-chari","tag-sec","tag-secured-overnight-financing-rate","tag-securities-and-exchange-commission","tag-sofr","tag-usd-libor"],"authors":[{"term_id":348,"user_id":481,"is_guest":0,"slug":"mngo","display_name":"Phuong (Michelle) Ngo","avatar_url":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-content\/uploads\/sites\/14\/2020\/08\/ngomichelle-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""},{"term_id":346,"user_id":414,"is_guest":0,"slug":"rschari","display_name":"Roger S. Chari","avatar_url":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-content\/uploads\/sites\/14\/2020\/02\/chariroger-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""},{"term_id":360,"user_id":478,"is_guest":0,"slug":"jne120","display_name":"Joel N. Ephross, P.C.","avatar_url":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-content\/uploads\/sites\/14\/2020\/07\/ephrossjoel-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""},{"term_id":353,"user_id":479,"is_guest":0,"slug":"ahh175","display_name":"Amelia (Amy) H. Huskins","avatar_url":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-content\/uploads\/sites\/14\/2020\/08\/huskinsamy-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/posts\/378","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/users\/481"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/comments?post=378"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/posts\/378\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/media?parent=378"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/categories?post=378"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/tags?post=378"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/bankinglaw\/wp-json\/wp\/v2\/ppma_author?post=378"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}