American Banker Says Bye to BSBY
American Banker writes, "RIP BSBY: Bloomberg to shut down its lagging Libor replacement." The piece tells us, "Bloomberg L.P. says it's shutting down its BSBY interest rate benchmark, marking a quiet end to the data provider's attempt to offer a successor to the defunct London Interbank Offered Rate. The end of Libor, which was once dominant in worldwide financial contracts but was phased out after a rate-rigging scandal, had brought about opportunities for new benchmarks. Bloomberg's goal was to have some chunk of loans between banks and their borrowers refer to BSBY, an interest rate that would go up or down depending on broader financing conditions. But the rate failed to gain much traction over the last couple of years, as the Secured Overnight Financing Rate was cemented as Libor's successor in the United States. Another competitor called Ameribor says it's pressing on, though its usage is more prominent at smaller banks than at larger institutions." The piece adds, "BSBY had the backing of some regional and national banks -- most notably Bank of America -- but U.S. banks and their borrowers didn't rush to adopt the rate at the scale that it needed.... Bloomberg announced this month the 'permanent cessation' of the BSBY index starting on Nov. 15, 2024. Borrowers and the holders of other contracts that refer to BSBY have a year to prepare for its expiration.... Securities and Exchange Commission Chairman Gary Gensler was particularly combative, warning in September 2021 that 'a crisis will reveal BSBY's flaws all too clearly.' Banking regulators were more open to the usage of BSBY and other alternatives to SOFR in loan contracts. Still, they have continually highlighted SOFR's strengths and thus indirectly nudged the industry toward that rate. Criticisms of BSBY added a feeling of 'risk and grayness' over its usage, making it even tougher to gain momentum, said `Edward Ivey, a lawyer and head of the derivative and swaps practice at Moore & Van Allen."
