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Replacement of LIBOR || Hot Topic Highlight - YouTube
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hi
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i'm jen niemann co-founder of property
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elite chartered surveyor and apc
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assessor
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at property elite we provide training
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and support for the apc
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asset rates and frics qualifications
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we cover all routes pathways in
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geographic regions via our team
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of specialist consultants and trained
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assessors
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this also includes the senior
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professional specialist
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academic and direct entry routes
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in this week's podcast we take a look at
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the replacement of the london
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interbank offered rate libor it's
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essential listening for apc
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property finance investment candidates
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as well as those and other pathways
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pursuing property finance and funding as
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a technical competency
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it'll also be of relevance to candidates
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advising on interest rates to be used in
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residual land valuations in development
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appraisals
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as well as asset and investment managers
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so libor is a benchmark investment rate
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and reflecting the cost of short-term
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borrowing between global banks
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it was first introduced in the 1980s by
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the british bankers association
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and it's used by around 30 trillion
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dollars of financial contracts globally
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it's calculated daily by the
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intercontinental exchange benchmark
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administrator
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and it's based on five currencies us
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dollar
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euro pound sterling japanese yen
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and swiss franc it also serves seven
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maturities
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overnight or spot next one week and one
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two three six and 12 months this means
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that there are 35
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different libel rates in total libor is
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used as a basis for calculating interest
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rates relating to mortgages corporate
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loans credit cards student loans
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into bank products such as interest rate
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swaps futures and options
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syndicated loans and so on
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libor is being phased out by the end of
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2021 by the bank of england and
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financial conduct authority
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it's being replaced following the global
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financial crisis of 2008-2000
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this led to a reduction of activity in
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the markets that libor is based upon
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the calculation of libor also no longer
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meets
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internationally accepted principles for
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transparency and robustness
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libel will be replaced by other
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risk-free rates such as the sterling
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overnight index
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average sonia benchmark sonia for
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example
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similarly reflects the average interest
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rates that banks pay to borrow sterling
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overnight
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from other financial institutions and
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institutional investors
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the key difference with libor is that
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sonya is backward looking
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so it's near risk-free with no premium
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for the term
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rather than forward-looking so with a
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credit premium for bank credit risk and
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a liquidity premium for longer dated
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funds
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and finally what are the implications of
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libor being replaced
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the replacement of libel with
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alternative rates will lead to pricing
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cash flow accounting and operational
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implications
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this includes how legacy contracts based
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on libel will continue to operate
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and how alternative rates will replace
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libor in new contracts
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in particular this will affect defect
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default interest clauses
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other payment calculations and triggers
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for financial governments
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if you head to our website blog you can
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read more on the specific
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implications in a link to a pwc article
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that's it for today's podcast remember
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you can book in your free 15-minute
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consultation viral website
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we can also provide feedback on your
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referral or prelim review report
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if you head to our website you can also
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access our other free support resources
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including our ebook guides
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podcasts videos quizzes blog and cpd
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newsletter
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we can't wait to work with you so thank
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you for listening and i'll see you next
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[Music]
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week
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