Treasury, Agencies Urge Financial Institutions to Offer USD Libor Alternatives

In a letter to nonfinancial corporations today, the heads of the Treasury Department, Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission addressed the ongoing Libor transition, noting that “a smooth transition will be best supported if financial institutions offer alternatives to USD Libor that meet borrower needs and if this is done in a timely fashion.”

The letter came after nonfinancial corporate trade groups raised concerns about the Libor transition, including challenges with finding loan agreements based on the Secured Overnight Financing Rate, the Alternate Reference Rates Committee’s preferred Libor alternative.

“We have stressed the importance of reference rates built on deep, liquid markets that are not susceptible to manipulation,” the policymakers wrote. “Although the official sector is not positioned to adjudicate the selection of reference rates between banks and their commercial customers, borrower preferences and needs clearly have a significant role to play in the selection of such rates.”

In other reference rate news, CME Group today announced that cash-settled, three-month futures on the Bloomberg Short-Term Bank Yield Index are now trading alongside SOFR, Eurodollars and Fed Funds futures. BSBY is a forward-looking, credit sensitive reference rate that tracks the U.S. wholesale unsecured funding market.