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Alternative Reference Rates

​Libor—the London Interbank Offered Rate—underpins more than $350 trillion in mortgages, commercial loans, bonds and derivatives worldwide. U.S. dollar Libor alone is the reference rate for $200 trillion in financial instruments. But while Libor is guaranteed to be sustained through 2021, its lack of depth and transparency makes its long-term viability questionable. Based on the expert judgment of a shrinking panel of banks, the benchmark rate is increasingly less of a robust, transactions-based market interest rate.

For several years, U.S. financial institutions and regulators have been planning for a transition away from Libor. In 2018, the Federal Reserve began publishing three reference rates, including the Secured Overnight Funding Rate, which the Alternative Reference Rates Committee recommended as a replacement for U.S. dollar Libor. SOFR is a broad measure of overnight Treasury financing transactions with about $700 billion in underlying transactions per day. ABA is engaged with regulators and banks in facilitating the transition away from Libor toward more robust benchmarks.

ABA Position

ABA is working with the Alternative Reference Rates Committee as it works to identify best practices for alternative rates and contract language, and we support ARRC’s efforts to ensure that the needs of a variety of financial institutions are addressed in its transition plans. To facilitate the transition, ABA is co-chairing the ARRC's Business Loans Working Group engaging bankers in the deliberations and helping to facilitate broad market dialogue on benchmark evolution.

 

 Newsbytes

 
 

 Comment Letters

 
 

 Resources

 

Fed Official to Host Weekly Conference Call on Libor Transition

The Alternative Reference Rates Committee announced yesterday that David Bowman, a senior adviser at the Federal Reserve Board, will host a weekly conference call for market participants to answer questions about the ongoing transition away from the London Interbank Offered Rate. Each conference call will take place on Fridays beginning this week from 2 to 3 p.m. EST. Participants may dial 855-377-2663 and enter code 54087034.

Bowman recently appeared on the ABA Banking Journal Podcast to discuss what bankers need to know about the Libor transition, including why the ARRC selected the Secured Overnight Funding Rate as its preferred alternative, the urgency of reviewing bank portfolios to ensure contracts contain Libor fallback language and supervisory expectations regarding SOFR use and transition planning.

Questions? Contact Hu Benton for more information.