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! In its latest quarterly report, the Bank said it had “continued to see evidence of an improving economic outlook, including strong growth in consumer spending and household spending”.