The LIBOR Transition: A Risk Management Stress Event

ARRC Chair Tom Wipf and Gary Mandelblatt of NextGen Strategic Advisors discussed why the LIBOR transition should be viewed as a major risk management stress event and how firms can protect themselves from transition-related risks and financial losses.

While many firms view the LIBOR transition primarily as a regulatory event and are managing it as a compliance event, it is actually a significant market, credit and operational risk management stress event as well.

The LIBOR transition will potentially have a substantial P&L impact on many cash and derivatives trading businesses and a net interest revenue impact on the accrual asset/liability management portfolios. These P&L impacts are expected to begin as soon as the next few months and evolve over four distinct periods through December 31, 2021.

As a result, there will be financial winners and losers as the LIBOR cessation date approaches. Financial institutions who overlook the risk management implications and who do not prepare will lose money.

What can firms do? Risk management teams, along with their CEOs and senior management, will need to make a number of key decisions that will enable their firms to mitigate the risks and minimize P&L impacts. A focused and coordinated risk management effort will be required across all front office and control functions.

In this webinar, Tom Wipf and Gary Mandelblatt discussed:

  • Market, credit and operational risk management impacts of the LIBOR transition
  • Critical stress testing analyses and modeling that firms should employ now to prepare for the transition
  • Key information required to inform senior management of risk exposures
  • Strategies that can protect firms from risks and financial losses

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