By Huw Jones and Marc Jones

Disruption to markets caused by the COVID-19 pandemic must not stop banks from ending their use of the Libor interest rate benchmark by the end of 2021, the Financial Stability Board said on Wednesday.

Libor or London Interbank Offered Rate is used to help price contracts from mortgages to credit cards worth around $400 trillion globally.

Regulators want banks to use rates compiled by central banks after lenders were fined billions of dollars for trying to rig Libor.

"Libor transition remains an essential task that will strengthen the global financial system," said the FSB, which coordinates financial rules for the Group of 20 Economies (G20).

The FSB will publish a report later this month on how to deal with remaining challenges to ending the use of a benchmark.

COVID-19 has highlighted that the underlying markets Libor seeks to measure are no longer sufficiently active, it said.

The most widely used Libor rates rose in March even though central banks were cutting their own interest rates to help mitigate the shock of COVID-19 to markets, the FSB said.

Credit rating agency Moody's said in a report on Wednesday that without a transition plan, otherwise manageable issues such as increased costs and inadequate hedging, become more material and make it difficult to quantify risks.

"One possible result is that contractual obligations effectively convert to a fixed rate indefinitely by simply referring to the last published Libor after its withdrawal," Moody's said in a report.

The longer Libor transition issues go unresolved, the greater the likelihood of parties turning to the courts to resolve disputes, Moody's said.

Despite consistently pushing to drop Libor, officials across markets have used the benchmark in some coronavirus-spurred relief lending schemes.

The U.S. Federal Reserve used Libor for its $600 billion Main Street Lending Program, citing feedback from potential participants that quickly implementing new systems to issue loans based on the Fed's Sofr rate would require diverting resources from challenges related to the pandemic.

(Reporting by Huw Jones; editing by Philippa Fletcher; Editing by Gareth Jones)