Banking and Finance Law Daily Joint statement from U.S. regulators signal USD LIBOR end after 2021
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Monday, November 30, 2020

Joint statement from U.S. regulators signal USD LIBOR end after 2021

By Jacob Bielanski

The OCC, FDIC, and Fed called on banks to avoid any new LIBOR-based contracts "as soon as is practicable" to ensure most contracts mature before the lending benchmark fully ceases publication in 2023.

Banks should prepare for the end of the London Inter-Bank Offered Rate (LIBOR) at the end of 2021, according to a joint statement released by U.S. financial regulators and supported by the United Kingdom-based administrator of the LIBOR. "These announcements represent critical steps in the effort to facilitate an orderly wind-down of USD LIBOR," Federal Reserve Bank of New York President John Williams said in a statement released by the Federal Reserve.

Publication of two-week and one-month LIBOR rates will end after Dec. 31, 2021, with remaining LIBOR settings published June 30, 2023, according to the joint statement between the Office of the Comptroller of the Currency, Federal Reserve, and Federal Deposit Insurance Corporation. The end date should allow most legacy contracts to mature before the end of the LIBOR, according to the Fed, while encouraging banks to avoid entering into new USD LIBOR-based contracts "as soon as practicable."

In a separate statement, the U.K.’s Financial Conduct Authority (FCA) said it welcomed the joint U.S. guidance, but noted that its statement should not be construed as an announcement that the LIBOR has been, or will be ceased. It noted the need for a bill introduced to parliament in October that would grant it additional powers to prohibit new use of the benchmark for regulated entities if it considered "doing so protects consumers or market integrity" and would not "envisage using this power before end-2021."

The Alternative Reference Rate Committee (ARRC) hailed the statement as a means to accelerate the use of its recommended alternative benchmark, the Secured Overnight Financing Rate (SOFR). The ARRC was convened by the Federal Reserve in 2014 to find an alternative to LIBOR, bringing together various U.S. federal departments as well as financial industry groups. In addition to its recommended alternative, the ARRC has also developed a "Paced Transition Plan" to assist financial institutions in moving away from the U.S. dollar LIBOR.

"It has long been recognized that LIBOR is fundamentally flawed, and the ARRC has produced many tools to support the move away from LIBOR." ARRC Chairman and Vice Chairman of Institutional Securities at Morgan Stanley, Tom Wipf, said in a press release following the joint statement. "These announcements underscore the importance of our work by shedding more light on how USD LIBOR could conclude."

Companies: Morgan Stanley

MainStory: TopStory BankingOperations FederalReserveSystem FinancialStability

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