BOE’s Bailey Says Sterling Libor Switch Is ‘Pretty Much’ There

(Bloomberg) -- Many of the issues thrown up in the transition away from sterling Libor appear to have been addressed, Bank of England Governor Andrew Bailey said Monday, delivering a confident assessment of the U.K.’s exit from the discredited benchmark.

Britain, the home of Libor, is making faster progress than the U.S. and Japan. U.K. replacement rate Sonia, the Sterling Overnight Index Average, has seen widespread take-up the derivatives market, and firms were instructed in April to stop issuing new sterling Libor-linked loans, bonds and securitizations.

”We had to come up with extensive consultation with all parts of the market to say ‘what do you need going forwards?’ -- and many of the most recent issues there have been, to what extent you need term rates and what extent you need forward-looking term rates and backward-looking term rates,” Bailey said at the Association of Corporate Treasurers’ annual conference. “I think certainly for sterling we’re there, pretty much.”

Britain’s success on Libor is fueled by a number of factors. It picked a replacement that had been around since 1997, which the BOE took over in 2016, whereas the main U.S. replacement, the Secured Overnight Financing Rate, didn’t appear until 2018.

Britain’s financial markets are also smaller and simpler than those in the U.S., and U.K. regulators have been more prepared to step and tell companies what to do, such as threatening bankers’ bonuses over slow progress. The U.S. has pursued a market-led solution spear-headed by the Alternative Reference Rates Committee, which is backed by the Federal Reserve.

“I think with the dollar, there is a very strong commitment now to get there,” Bailey said.

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