'Big bang' end for Libor could overload markets, bankers say

By Huw Jones

LONDON, Jan 26 (Reuters) - A "big bang" end for interest
rate benchmark Libor in December this year could leave banks and
their customers struggling to switch trillions of dollars worth
of transactions to an alternative, bankers said on Tuesday.

Libor, the London Interbank Offered Rate, used to price
everything from mortgages and credit cards to derivative
contracts, will be scrapped on Dec. 31 after banks were fined
for trying to rig it.

Instead, rates set by central banks will replace Libor in
the biggest change in global financial market in decades. One of
the new benchmarks - known as Sonia - is set by the Bank of
England.

A sudden end to Libor could risk legal limbo for some
financial transactions that have not made preparations to switch
to a new benchmark, potentially hampering the flow of money to
businesses.

Chris Dickens, chief European operating officer at HSBC
, said switching outstanding contracts from Libor to
Sonia in one go at the last minute would be tricky.

"I am not sure that our operational systems could cope with
that, either individually as a bank or in terms of the
technology that we use to connect with each other," Dickens told
a City & Financial conference.

Financial regulators have said that from April there should
be no new loans and derivatives contracts based on Libor that
mature after December, and that moving existing contracts from
Libor should be well underway.

Some smaller customers are not ready.

"Key in this next phase is going to be the response from
customers as we engage with them," said Ian Fox, Libor
transition director at British bank Lloyds. "I don't
know what we are really going to face until we get there, that's
the challenge in the coming weeks and months."

"I think we are going to see a lot of thorny issues that
really require some senior attention in our organisations,"
Dickens said.

Britain's Financial Conduct Authority said on Tuesday that
97% of sterling denominated derivative contracts now include
"fallback" clauses to switch pricing to the Bank of England's
Sonia overnight rate when Libor ends, to avoid legal limbo.

Some 12,500 banks and others across the world have signed up
to this "fallback" clause, meaning $245 trillion of the $260
trillion in derivatives globally will be covered, the FCA said.

Edwin Schooling Later, the FCA's director of markets, said
the watchdog will consult in the spring on which "hard legacy"
contracts could use a "synthetic" Libor for pricing after
December and those that could not.

"Overall we should paint a picture of good news and good
progress, the industry has been rising to this challenge,"
Schooling Latter said.
(Reporting by Huw Jones. Editing by Jane Merriman)