McHenry Presses Fed for a Briefing on Libor Transition

House Financial Services Committee Ranking Member Patrick McHenry (R-N.C.) wrote to Federal Reserve Vice Chairman for Supervision Randal Quarles last week requesting a January briefing on efforts by the Fed and other prudential regulators to prepare banks for the transition away from the London Interbank Offered Rate.

The transition away from Libor, expected to be completed by the end of 2021, could create “substantial operational risks” for financial institutions, McHenry wrote. He expressed concern that the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred replacement, does not current include a credit-sensitive element that would align it more closely to the funding costs of a broad range of banks. Further, he noted the potential impact of the transition on consumer loans and Libor-based legacy contracts.

A briefing before the Financial Services Committee, McHenry said, “should include information to assist members to better understand the regulatory framework prudential regulators believe will address this issue.”