Quarles: Lenders Need to ‘Pick up the Pace’ on Libor Transition

Lenders need to “pick up the pace” to be ready for the year-end change away from Libor to alternative reference rates, Federal Reserve Vice Chairman for Supervision Randal Quarles, who also chairs the Financial Stability Board, said in a speech today. One-week and two-month U.S. dollar Libor tenors will end as of Dec. 30, 2021, and remaining tenors will cease publication after June 30, 2023, and Quarles noted that “Libor quotes available from January 2022 until June 2023 will only be appropriate for legacy contracts,” and that “we will supervise firms accordingly.”

One of the highest priorities of the Fed’s bank supervisors in the coming months will be reviewing banks’ cessation of Libor use, Quarles said. Based on data from the second quarter of this year, the Fed estimates that large firms used alternative rates for less than 1% of floating rate corporate loans and 8% of derivatives.

The Alternative Reference Rates Committee has been publishing tools to facilitate the use of SOFR for almost four years, Quarles said, adding that the ARRC also recently recommended SOFR term rates, which will facilitate the transition from Libor to SOFR for market participants who wish to use a forward-looking rate.

“Given the availability of SOFR, including term SOFR, there will be no reason for a bank to use Libor after 2021 while trying to find a rate it likes better,” said Quarles. There is no more time, Quarles emphasized, adding that “banks will not find Libor available to use after year-end no matter how unhappy they may be with their options to replace it.”