What Challenges Exist with the Transition from IBORs to RFRs?

By Mohamed Ismail

A featured article of our January 2020 edition of PRMIA's Intelligent Risk quarterly newsletter


As we embark on a new decade, the challenge of replacing all ‘Inter-bank offer rates’ (IBORs)  with ‘Risk-free rates’ (RFRs) remain a top priority for thousands of banks, insurers, corporates, and asset managers worldwide. By now, many financial organizations have acknowledged the industry-wide deadline of December 31, 2021 and have started building strategic groups, teams, and secured funding to address this complex initiative. An estimated $350 MM (USD)  gross notional contracts, largely made up of OTC and exchange-traded derivatives   make   up a bulk of the traded products referencing IBORs, followed by debt, structured, and  cash  products.  The aim is to produce a new benchmark rate free of market subjectivity and manipulation,  promoting  fair  transaction-based valuations that represent the activity in the financial markets.  While organizations such as the CME have cleared millions of futures contracts referencing  RFRs  (i.e.  –  the  ‘Secured Overnight Financing Rate’  SOFR), the industry is still struggling, sparking industry-wide debate and strategic alliances to avoid a potential systemic catastrophe.


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Intelligent Risk is PRMIA's quarterly publication, bringing all PRMIA members free access to knowledge and information about risk management for financial institutions as well as current information on PRMIA chapters, committees, academic partners, news and events.

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