Fed issues final rule for LIBOR replacement

Bank Regulatory Federal Issues Federal Reserve LIBOR SOFR Interest Rate

On December 16, the Federal Reserve Board adopted a final rule to implement the Adjustable Interest Rate Act by identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) that will replace LIBOR in certain financial contracts after June 30, 2023. The final rule ensures that LIBOR contracts adopting a benchmark rate selected by the Fed will not be interrupted or terminated following LIBOR’s replacement. Among other things, the final rule identifies: (i) SOFR-based Fed-selected benchmark replacements for LIBOR contracts that will not mature prior to the LIBOR replacement date and do not contain clear and practicable benchmark replacements; (ii) different SOFR-based Fed-selected benchmark replacements for different categories of LIBOR contracts, including overnight, one-month, three-month, six-month, and 12-month LIBOR contracts subject to the Act; and (iii) certain benchmark replacement conforming changes related to the implementation, administration, and calculation of the Fed-selected benchmark replacement. The Fed noted that in response to comments, the final rule restates safe harbor protections contained in the Act for selection or use of the replacement benchmark rate selected by the Fed, and clarifies who would be considered a “determining person” able to choose to use the replacement benchmark rate.