McWilliams Expresses Concern about New Loans Tied to Libor

In an interview with MarketWatch published today, FDIC Chairman Jelena McWilliams expressed concern that banks are continuing to originate loans with contracts tied to the London Interbank Offered Rate, despite the fact that the rate is not guaranteed to be available after 2021. “I think the banks in particular are uncertain exactly what the new rate will be,” McWilliams said. “They’re in this limbo right now.”

McWilliams added that the FDIC does not endorse any particular rate to replace Libor. “We said whichever rate you use, make sure you manage the risk associated with that rate appropriately.”

The New York Fed’s Alternative Reference Rates Committee—of which ABA is a member—has identified the Secured Overnight Financing Rate as its preferred alternative for U.S. dollar Libor. The ARRC is releasing resources to support the financial sector’s transition away from Libor.