The Bank of England expects Libor-linked collateral to include fallback language in the event that Libor is no longer a viable benchmark, it said on Thursday, suggesting that it will no longer accept any deals without such language as collateral. “We can already accept Sonia-linked collateral, subject to meeting appropriate eligibility requirements,” said Andrew Hauser, executive director for markets in a . “An alternative would be to ensure Libor-linked collateral includes adequate fallback language specifying an alternative rate in the event that Libor ceases ...
The BoE has published a discussion paper seeking input on how to address the issue of accepting LIBOR-linked collateral that matures after 2021 and lacks adequate fallback provisions, as the phase out date for the benchmark rate draws closer. The paper proposes a combination of rising haircuts and eligibility restrictions; market participants have been asked to respond by 27 September. LIBOR-linked assets are used to collateralise about 10% of banks’ current drawing capacity with the BoE. Relevant document: Join the revolution! Why it makes business sense to move on from LIBOR ~ BoE ~ 27-Jun-19