Goldman Sachs Group Inc. sees a global migration away from thescandal-tainted London interbank offered rate (LIBOR) improving thesoundness of debt markets, but it's likely to be an arduousprocess.
|The world was put on notice last year that LIBOR was set to beconsigned to the history books, and global regulators have beenspearheading the promotion of alternatives to the half-century–oldglobal borrowing benchmark. In the U.S., the heir presumptive toLIBOR is the secured overnight financing rate, or SOFR,while in the U.K. authorities have been championing the SterlingOvernight Index Average, known as SONIA.
|The impact of shifting to new benchmarks “is going to be,hopefully, an improvement in safety and soundness,” Goldman SachsTreasurer Beth Hammack said in a podcast posted by the firm thisweek that was recorded in September. “That said, it's going to be areally painful transition to get there because there are so manypeople and so many products that are referencing this rate. It issuch a foundational part of our markets. And markets are reallycreatures of habit.”
|Jason Granet, who in September was appointed to lead GoldmanSachs' transition away from LIBOR, said on the podcast that theglobal movement to new benchmarks will be “nothing short ofenormous for a lot of people.”
|Participants and regulators are currently in a “phase ofunderstanding where everything is, and that will help define thepath as we go forward,” Granet said. That includes getting a gripon documentation and figuring out how to inventory outstandingtrades. For Granet, the transition process is actually a lotfurther along than he thought it would be.
|“We've seen around the first 10 billion specifically in the U.S.dollar market referencing SOFR. So, we have the rate, we havecontracts, we have things trading,” he said. “It has a lot ofmomentum, and people are really talking about it.”
See also:
- Upcoming Webcast: “System Modernization andConsolidation: The Fannie Mae Success Story”
- Floating-Rate Notes Linked to SOFR
- LIBOR Challenger Embraced in Debut Commercial PaperTransaction
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From: Bloomberg
|Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.
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