Reference banks: a dying breed?
By Catherine Astruc
The Wheatley Report on LIBOR, published nearly two years ago, noted the potential problems of relying on reference bank rates as a fall-back cost of funds benchmark ‘in the event of longer-term disruption to the publication of LIBOR’. It recommended that industry bodies and market participants find alternative contingency benchmarks. While no alternatives have yet become widespread in the syndicated loan market, including the usual reference bank, mechanics in loan agreements are becoming increasingly problematic as fewer banks are willing to perform the reference bank role. This article explains why and suggests some ways of addressing these difficulties.
Why are some banks refusing to be reference banks? Since July 2013, LIBOR contributing banks have been subject to a code of conduct. Some contributing banks have expressed concern that by providing quotes as a reference bank, they could breach their obligation in that code of conduct to keep rate information confidential.
Under the LIBOR Code of Conduct, contributing banks must not ‘disclose rates that will be submitted in the future or have been submitted to the LIBOR administrator but not yet published to any external individual or internal individual’…
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