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Flexibility in the financial market in response to major changes

Author(s): Lisa Mantello, Timothy Hughes, Jasmyn Lee

Dec 8, 2020

This year, financial market participants have been subject to many unprecedented changes that have forced them to show a great deal of flexibility. This article highlights two of these events: the cessation of LIBOR and the impact of the COVID-19 pandemic.

The cessation of LIBOR has been anticipated for a number of years and there have been many discussions regarding the potential impact of its termination. However, very little changed in practice prior to 2020, despite the complexity involved for business in adapting to this change. LIBOR is widely used on a global basis in thousands of credit agreements and borrowing arrangements in respect of trillions of dollars of borrowings. Implementing a change of this nature requires widescale agreement across the industry regarding appropriate replacement rates. Equally, a carefully planned approach to implementation of the change is essential...