National Feature: The end of LIBOR?

Sean Gibbs, CEO

Hanscomb International

THE END OF LIBOR = THE END OF LIBOR + X%

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. LIBOR serves as a globally accepted key benchmark interest rate that indicates borrowing costs between banks. The rate is calculated and published each day by the Intercontinental Exchange (ICE), but due to historical scandals and questions around its validity as a benchmark rate, it is being phased out. The LIBOR is due to end towards the end of 2021 for major currencies such as CHF, EUR, GBP JPY and EUR, the cessation date being 31st December 2021, with the USD data ending just after.

LIBOR is currently produced in 7 tenors (overnight/spot next, one week, one month, two months, three months, six months and 12 months) across 5 currencies. It is based on submissions provided by a panel of 20 banks. These submissions are intended to reflect the interest rate at which banks could borrow money on unsecured terms in wholesale markets.

Of the publicly published ICSID awards it is thought that around 33.3% are based on LIBOR with an uplift applied. As it is being discontinued, experts and tribunals will no longer be able to rely on it as a reference rate.  Tribunals award interest on a variety of bases including:

(1) compensation for the time value of money;

(2) compensation for the actual risks to which the claimant has been exposed; and

(3) compensation for the specific consequences for the claimant of being deprived of funds

With the end of LIBOR, experts and tribunals will need to look for alternative ways to award interest. There are other rates, but they are usually based on shorter durations than the 12 month rate which is the most commonly used for high value ICSID awards.

These are the views of the author and not of Barton Legal, and should is not to be treated as advice or guidance