That’s a more serious problem for some types of instruments than others. The large majority of business loans in existence today will mature or be renegotiated before the end of 2021 in the ordinary course. So the loans can be converted entirely to SOFR loans before the clock runs out on LIBOR, or at least fallback provisions can be added. There’s also good news on derivatives, relatively speaking. A large percentage of derivative contracts are also shorter-term. Over-the-counter derivatives that do extend past 2021 can be amended to incorporate new rates and fallback provisions through a protocol procedure that the International Swaps and Derivatives Association (ISDA) will put in place. That’s still a lot of work for everyone who has LIBOR derivatives, but it’s a relatively clear way forward. And for exchange-traded derivatives, the exchanges themselves can specify fallbacks through rulebook amendments. The exchanges have indicated they will adopt the same basic fallback methodologies as ISDA. This is all good news. Consumer loans present different issues. The documentation generally gives the lender discretion to unilaterally choose a comparable rate if LIBOR goes away. That sounds simple. But, in practice, the knot of reputational, operational, and legal considerations involved in changing the interest rate basis on consumer loans will require attention and resources to unravel. And over 40% of LIBOR-based residential mortgage loans currently outstanding extend past 2021. One of the more difficult challenges is the one posed by floating-rate notes, securitizations, and preferred stock whose payments are tied to LIBOR.
On the one hand, it is tautological to say that crises are unpredictable, or else  2  It is out of the scope of this presentation to discuss the role of monetary policy in causing the crisis. As I have argued elsewhere (De Gregorio, 2010), the cause of the crisis was mainly financial fragility, while lax monetary policy played only a secondary role. Many countries, such as Chile or Canada, for example, had very expansionary policy before the crisis, and did not suffer a financial collapse. BIS Review 84/2010  3  they would never occur. History is plagued with crises. Moreover, crises have become more frequent in recent decades as compared with the Bretton-Woods period, although their severity and duration have not changed significantly (Bordo et al., 2001). Crises must be avoided, but the only way to make sure they do not happen is to eliminate financial innovation and development altogether, which we know is not a good prescription. Therefore, crises will still occur, and the role of policies is not to be the cause of them, but to increase resilience of financial systems and minimize their cost. 3 Of course, all these elements were absent in the global financial crisis and for this reason we need to devote more thinking to reforms. Although crises will continue to happen, we must not conclude that since crises are unavoidable, there is nothing we can do about them.