U.S. regulators implore banks to stop using key rate tied to some $200 trillion in debt by end of 2021
Three U.S. bank regulatory agencies on Monday called on banks to stop writing contracts referencing U.S. Libor by the end of 2021.
The announcement was tied to a separate announcement from overseas regulators establishing June 2023 as the end date for U.S. dollar Libor reference rates.
U.S. bank regulators are trying mitigate the risk of the transition through an orderly winddown.
U.S. regulators have decided to replace dollar Libor a scandal-plagued benchmark with the Secured Overnight Financing Rate, or SOFR.
This overnight rate, published daily by the New York Fed and based off Treasury bond borrowing costs, is aimed at creating a more reliable system of interest rates for financial transactions.
For months, the Alternative Reference Rates Committee, consisting of major banks, insurers and asset managers alongside the New York Fed, have been rallying derivatives investors and users of Libor to be ready for the end of the London interbank offered rate.
Under the plan, most legacy contracts that were written using dollar Libor will be allowed to mature. Congress has to pass legislation to cover some remaining contracts.
The supervisors are writing guidance that writing new dollar Libor contracts after Dec. 31, 2021 is an unsafe and unsound practice.
