BOSTON–The financial markets need to pick up the pace when it comes to migrating away from LIBOR, according to a new report from a Federal Reserve committee.
According to the Fed, the move away from the most popular interest rate reference tool and the widely used benchmark will need to “materially accelerate” for the market to be adequately prepared to use the new base measure, the Fed said.
According to the Fed analysis, some products, such as business loans, have not diminished the use of the London Interbank Offer Rate (LIBOR) in setting interest rates.
“With essentially nine months left to end-2021, it is critical that market participants are actively taking steps to support the transition using the tools available now,” said Tom Wipf, chairman of the Fed Bank of Boston’s Alternative Reference Rates Committee (ARRC,) in a statement accompanying release of the report.
In the Fed report the ARRC stated use of one alternative rate – the Secured Overnight Financing Rate (SOFR), which the organization selected four years ago as its preferred alternative reference rate – has seen a “considerable uptick” in trading activity through 2020 in floating rates notes and consumer mortgage markets in particular.
But the report also knows adoption has not been as widespread as need be, with the report noting new data on outstanding exposures to U.S. dollar (USD) LIBOR and reveal use of LIBOR has continued in some markets.
Most Widely Used
LIBOR is the most widely used reference rate for adjustable-rate mortgages and other loans. It is being phased out because the transactions upon which it is based don’t occur as often as in prior years.
“Although an estimated 60% of current LIBOR exposures will mature before June 2023, an estimated $90 trillion will remain outstanding – a fact that underscores the importance of finding solutions for legacy contracts,” the ARRC said in its statement.
In November, 2020, U.S. federal banking agencies began advising institutions the rate should not be used for new contracts and, in any event, not following Dec. 31, 2021, after which regulators have said they can no longer guarantee production of the rate.
‘Robust Fallback Language’
The agencies said any new contracts entered into before Dec. 31, 2021 should either use a reference rate other than LIBOR or have “robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation.”
When the government shutdown hit in October and paychecks stopped, thousands of federal employees were left wondering how to make ends meet. Credit unions across the country stepped up—but Keesler Federal Credit Union went above and beyond. No loans, no hassle—just your paycheck Instead of making members apply for emergency loans, Keesler Federal launched its Paycheck Relief Program. Revolutionary in its simplicity, it worked like this: if you were a federal employee with direct deposit at Keesler Federal, your paycheck kept coming—interest-free, fee-free, and stress-free. Each qualified member could receive up to $6,000 per pay period for as long as 90 days. No hoops, no headaches. From October 1 until the shutdown ended, Keesler Federal advanced more than 5,000 paychecks totaling $6.5 million to 1,710 members. For non-members, they even offered zero-interest loans up to $6,500 with a year to pay it back. This proactive approach meant that before the first missed paycheck, Keesler Fed...
Comments
Post a Comment
Please no profanity or political comments.