The Federal Reserve today invited comment on a proposal to provide default rules for certain contracts that use Libor. The proposal implements the Adjustable Interest Rate (LIBOR) Act, which Congress enacted earlier this year.
Libor will be discontinued after June 30 next year. In response, Congress enacted the Libor Act to provide a solution for replacing references to Libor in existing contracts without adequate fallback provisions. The proposal would replace Libor references in certain contracts with the applicable Fed-selected replacement rate after June 30, 2023. The contracts include those governed by domestic law that do not mature before Libor ends and that lack adequate fallback provisions.
The proposal identifies separate Fed-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, and all other affected contracts. As required by the law, each proposed replacement rate is based on the Secured Overnight Financing Rate. Comments will be accepted for 30 days after publication in the Federal Register.