On November 30, announcements were made by LIBOR’s administrator (ICE Benchmark Administration), LIBOR’s regulator (the UK Financial Conduct Authority), the U.S. regulators (Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation), the Alternative Reference Rates Committee (ARRC), and the International Swaps and Derivatives Association (ISDA) providing updates regarding the LIBOR transition. The key takeaways of these announcements were:
- ICE Benchmark Administration, LIBOR’s administrator, announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. The biggest change is that the most frequently used LIBOR settings that we have seen used (one-month and three-month), subject to the consultations, may continue to be set through June 30, 2023. This is an 18-month extension from December 31, 2021. The reasoning behind the extension until June 30, 2023, is that it will allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions. A word of caution to municipalities, transactions that are tied to long-term bonds and are long-term in nature, maturing after June 30, 2023, will still be subject to concerns about the discontinuation of LIBOR.
- U.S. regulators encouraged banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021, and stated that new contracts entered into before December 31, 2021, should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation. The U. S. regulators stated that given consumer protection, litigation, and reputation risks, they believe entering into new contracts that use USD LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and will examine bank practices accordingly.
The LIBOR transition is an ongoing issue that we are closely monitoring. For additional information, you can watch our webinar—“LIBOR is ending: Are you prepared for the transition?”
Additional Resources:
- ARRC Applauds Major Milestone in Transition from U.S. Dollar LIBOR
- Federal Reserve Board welcomes and supports release of proposal and supervisory statements that would enable clear end date for U.S. Dollar (USD) LIBOR and would promote the safety and soundness of the financial system
- ICE Benchmark Administration to Consult on Its Intention to Cease the Publication of One Week and Two Month USD LIBOR Settings at End-December 2021, and the Remaining USD LIBOR Settings at End-June 2023
- FCA response to IBA’s proposed consultation on intention to cease US$ LIBOR
- Statement of LIBOR Transition by The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation
- ISDA Statement on IBA and UK FCA Announcements on LIBOR Consultations