Where The Post-Libor Litigation Tsunami Will Hit

It is rare for a banking regulator to warn the industry of a "DEFCON 1 litigation event," a "situation that invites litigation" that "would be on a massive scale." But that's precisely what Michael Held, executive vice president and general counsel of the Federal Reserve Bank of New York, recently did. Held sounded a litigation tsunami warning over the "trillions of dollars of existing contracts" that incorporate the Libor rate and extend beyond Libor's anticipated permanent cessation at the end of 2021, but lack "effective fallbacks" to replace Libor.

After briefly considering the state of responses to regulators' calls for the development of workable Libor fallbacks in legacy instruments, this article addresses: (1) which products are subject to the greatest post-Libor litigation risk and (2) what kinds of claims we can expect. (Although Libor is also widely used in various types of consumer debt in the U.S., particularly mortgage loans, this article focuses on commercial and investment instruments.)

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