bank – are strongly encouraging financial institutions and corporations that use derivatives contracts referencing libor to review and, wherever practical, adhere to the isda protocol. [ 5 ] so if you haven't already signed the protocol, we'd urge you to do so as soon as possible. there is also a lot of good work going on across industry to develop robust fallbacks for non - derivatives products. this must proceed in a timely way so that these other contracts are also protected when libor ends after 2021. some more details last year the fsb published a global transition roadmap. this describes all of the steps involved and the relevant timelines for financial market participants. [ 6 ] for example : by now you should have identified and assessed all existing libor exposures and be following a detailed plan to manage your transition before the end of 2021. financial institutions should already be offering non - libor linked loans to their customers. if your bank is not doing so, ask why. if you are not satisfied, find a bank which does offer such products. firms should also adhere, if they haven't already, to the isda ibor fallbacks protocol. by the middle of this year, firms should have established formal plans to amend legacy contracts where this can be done. they also need to have implemented the necessary changes to their systems and processes to enable transition to robust alternative rates. asic, apra and the reserve bank have published a more detailed checklist of the range of things you need to include in your transition plans. [ 7 ] if you follow these steps in a timely manner, your institution will be ready for the end of libor. banks'libor transition plans are proceeding. progress in stakeholder education and the required changes to contracts, systems and processes is in train. it was very pleasing to see overall notional exposures to libor declining over the course of 2020 for the key australian institutions. it was disappointing though to see that exposures had increased at some individual institutions. that needs to reverse course over the next 9½ months. regulators everywhere – including in australia – will be taking action as required to ensure that risks are appropriately managed. key libor messages in short, by the end of 2021, institutions must have already transitioned to alternative reference rates, and for existing contracts where that's not possible, robust fallback provisions must be in place to make clear what the replacement rate will be when libor ends. any firms that have not done

. in such a situation, the central bank had no way to act as lender of last resort. it could buy in government bonds, but the banks with bonds to sell are not the ones with liquidity need. money did not go round. in such a situation, if instead the market for corporate bonds had existed, financial institutions would have had some corporate bonds in hand - instead of just boxes of loan contracts. they could have sold the bonds. they might incur some losses. but at least they can look after themselves in the midst of crisis - regardless of the perception about their credit. the local bond markets in emerging asia, therefore, is an important safeguard that can help prevent a crisis. and since we want the asian countries to become more and more closely linked, lack of crisis is certainly good news. the bond market is a much better channel for capital flow than the bank channel. if capital comes in through the banks, foreign lenders may lend too much. they may bet on the eventual government bail out. on the other hand, if it comes through the bond market and if it is transparent and well - managed, resource allocation could be improved. however, for the local bond markets to be attractive to foreign investors, one has to accomplish many things. harmonization of standards and codes to international best practice must be done. hedging markets must be available for both currency risk and interest rate risk, and this may mean a rethink on capital controls. perhaps a gradual step - by - step relaxation in needed. transparency is also required both in price discovery and the management of both the macroeconomy and the individual corporates. the legal system must respect creditors ’ rights, and for investment products to be available for sale across asian countries, a uniform single passport of consumer production by the sec ’ s must be made. now comes the final question. what is the purpose of the asian bond fund? you may recall that the asian bond fund was announced on 2 june 2003 at us $ 1 billion by 11 central banks in east asia and pacific countries. initially it will invest in sovereign and quasi - sovereign bonds issued by asian governments in the international markets. this by itself already sparked a keen interest in asian bonds. i know of at least one asian central bank that had not invested in asian bonds before, other than in jgb ’ s, but has now started buying directly in addition to investment in the asian bond fund. thailand is now looking at doing this also.