Fed Committee Issues Second Report on Transition from Libor

The Alternative Reference Rate Committee today issued a second report summarizing its decision to adopt the Secured Overnight Financing Rate — or SOFR —  a broad measure of overnight Treasury financing transactions, as an alternative to U.S. dollar Libor. As announced last week, the New York Federal Reserve will begin publishing SOFR daily at 8 a.m. beginning on April 3.

As the transition to SOFR moves forward, one of the most complicated issues will be managing risks around legacy contracts that currently use Libor and do not have robust provisions in place in the event Libor is no longer published, the report noted. The AARC said that it plans to focus on more directly facilitating issues of legacy contract robustness and transitions for loans, floating rate notes and securitizations as well as derivatives.

The American Bankers Association supports the ARRC’s intent to address rate transitions in legacy contracts, as well as its efforts to address the needs of various financial institutions in its transition plans. ABA is forming a working group to discuss implementation considerations for loans and other products, and invites all interested bankers to join. With the viability of Libor past 2021 questionable, a recent article in the ABA Banking Journal also outlines several of the transition issues facing the industry.  For more information, contact ABA’s Barry Mills.