The Bank of England has delayed plans to encourage banks to abandon the London interbank offered rate, as efforts to phase out the discredited benchmark falter.
Moves by the BOE to use its lending operations to promote replacements will be delayed until April 2021, from October 2020. The measures involve increasing so-called haircuts applied to banks using LIBOR-linked collateral to borrow, in an effort to make alternatives more appealing.
LIBOR underpins trillions of dollars in financial assets and is set to expire at the end of 2021. But its dominance has proved stubborn, most lately because of the market turmoil unleashed by the coronavirus pandemic.
Currently, the BOE makes an average reduction of 25% on the value of LIBOR-linked collateral when deciding how much to lend, in the process known as haircutting. The changes will mean firms will be able to borrow less money from the central bank if they cling to the use of LIBOR.
"The haircut add-on will be 10 percentage points from April 1, 2021, 40 percentage points from Sept, 1, 2021 and 100 percentage points from Dec. 31, 2021," the BOE said in a statement. "For the avoidance of doubt, haircuts will be capped at 100%."