Work on LIBOR alternatives noted in latest FDIC Supervisory Insights

The future of and alternatives to the London Inter-bank Offered Rate (LIBOR) is examined in an article published in the Federal Deposit Insurance Corp.’s (FDIC) Winter 2018 issue of Supervisory Insights, released Wednesday.

LIBOR is a popular reference rate for commercial loans, residential mortgages, derivatives and swaps, and other credit instruments. Initiatives are underway that could transition financial m markets away from its use as a reference rate after 2021, the FDIC said in Wednesday’s release and in a Financial Institution Letter (FIL) issued on the same topic. Often viewed as a reference rate used by larger financial institutions, LIBOR is also important to smaller community banks and savings institutions, FDIC noted.

The Supervisory Insights article, “Transitions in Financial Instrument Reference Rates,” notes that one of the groups examining alternatives to LIBOR is the Alternative Reference Rate Committee (ARRC), established by the Federal Reserve Bank of New York. FDIC is an ex officio member of the group. In 2017, the ARRC developed the Secured Overnight Financing Rate (SOFR) primarily for dollar-denominated derivative products. It notes another US-based alternative reference rate called Ameribor, which was created by the American Financial Exchange (AFX).

FDIC, the article notes, does not endorse or require the use of any particular reference rate.

FDIC’s Supervisory Insights Winter Edition Focuses on LIBOR