It is 23.59 on December 31, 2021. In a minute’s time the London Interbank Offered rate, the interest rate on which trillions of dollars-worth of financial instruments are currently based, will cease to exist. The chance that all of these deals will have all been smoothly transitioned to the various alternatives that are now being developed is vanishingly small.
So, what will happen? At the most basic level any loan, bond or derivative that has not been transitioned will simply fall back to the last Libor rate before 2022 and stay there, jolting everything that is floating rate into a fixed rate instrument. At a broader level there will be widespread confusion, not helped by opportunistic players taking advantage of the chaos.