The global Financial Stability Board — made up of the U.S. Treasury and its counterparts in other developed countries — published a progress report today on its efforts to reform interest rate benchmarks such as the London Interbank Offer Rate, or Libor.
In an attempt to address attempted manipulation of Libor, regulators have taken steps to improve the reliability of Libor and other existing benchmark rates by tying them to transaction data where possible. The report notes that progress has also been made to promote the development and adoption of risk-free benchmarks as an alternative to Libor. In the U.S., the Alternative Reference Rates Committee in a May 2016 Interim Report and Consultation narrowed its choice of a risk-free rate to two rates: the Overnight Bank Funding Rate and some form of overnight Treasury general collateral repurchase rate.
The notional volume of outstanding loans, derivatives and other financial products indexed to U.S. dollar Libor is estimated to be more than $160 trillion. As such, a paced transition to an alternative to Libor is important. The ABA is engaging members on reference rate transition issues with respect to commercial lending obligations.
For more information or to provide feedback on reference rate transition issues, please contact ABA’s Barry Mills.