Broad Repo Rate Recommended as Libor Alternative

The Alternative Reference Rate Committee — a group of private-market participants convened by the Federal Reserve — on Thursday recommended a broad Treasuries repo financing rate as a preferred alternative to the London Interbank Offer Rate, or Libor, which is a standard benchmark rate for loan pricing.

This recommended alternative represents the ARRC’s view of best practice for use in certain new U.S. dollar derivatives and other financial contracts, including commercial loans and retail mortgages. 

 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, and 97 percent of the syndicated loan market is tied to Libor. As such, a paced transition to an alternative to Libor is important. The ARRC will refine its proposed transition plans and develop implementation options for its recommended rate in consultation with interested parties. The committee is expected to publish its final report later this year before implementation is expected to begin.
ABA is engaging members on reference rate transition issues with respect to commercial lending obligations.For more information, contact ABA’s Barry Mills.