Fed’s Powell: Markets Should Not Assume Viability of Libor After 2021

While the London Interbank Offer Rate, or Libor, will continue to be supported by reporting banks until 2021, Federal Reserve Governor Jerome Powell today cautioned that “we do not think market participants can safely assume” that Libor will remain viable beyond that date. Addressing a roundtable meeting of the U.S.-based Alternative Reference Rate Committee, Powell noted that transactions underlying Libor have become few and far between, leading to uncertainties about whether Libor could continue to be published.

The Federal Reserve in August proposed a Secured Overnight Financing Rate, or SOFR, a broad measure of overnight Treasury repo financing transactions as a replacement for U.S. dollar Libor for certain new derivatives and other contracts. Powell noted that while the work of the ARRC to date has focused on Libor alternatives in derivatives, it will now need to seriously consider transitions relative to other products from Libor, including loans.

The American Bankers Association was represented at today’s meeting and continues to engage with the ARRC on implementation considerations for commercial loans. For more information, contact ABA’s Barry Mills or Ananda Radhakrishnan.