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Financial Services Law Insights and Observations

ARRC not yet in a position to recommend forward-looking SOFR term rate

Federal Issues ARRC LIBOR SOFR

Federal Issues

On March 23, the Alternative Reference Rates Committee (ARRC) announced that it “will not be in a position to recommend a forward-looking Secured Overnight Financing Rate (SOFR) term rate by mid-2021.” Additionally, ARRC noted that it cannot guarantee that it will be able to recommend an administrator to produce a robust forward-looking term rate by the end of 2021, when certain LIBOR U.S. dollar settings cease being published (covered by InfoBytes here). ARRC “encourage[d] market participants to continue to transition from LIBOR using the tools available now,” such as the SOFR averages and index data and ARRC’s A User’s Guide to SOFR, and “not to wait for a forward-looking term rate for new contracts.”

Federal Reserve Board Vice Chair for Supervision Randal K. Quarles also discussed “safety and soundness risks associated with the continued use of USD LIBOR in new transactions after 2021.” Speaking at “The SOFR Symposium: The Final Year” hosted by ARRC, Quarles expressed concerns that use of USD LIBOR has actually increased over the past three years, and emphasized that there should be no “remaining doubts as to exactly when and whether LIBOR will end.” Among other things, Quarles also highlighted a recent Fed supervisory letter (covered by InfoBytes here), which provides supervisory guidance for examiners to consider when assessing an institution’s plan to transition away from LIBOR.

Find continuing InfoBytes coverage on LIBOR here.

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