The transition to risk-free rates from past benchmarks needs to accelerate, and the private sector is best situated to do so, the Federal Reserve’s top supervisor said Wednesday.
Noting that the transition from the London Interbank Overnight Rate (LIBOR) to the new Secured Overnight Financing Rate (SOFR) is proceeding, Federal Reserve Board Vice Chairman for Supervision Randal Quarles indicated more work must be done.
“New markets do not arise overnight – in normal circumstances they can often take decades to develop,” Quarles told the Financial Stability Board Roundtable on Reforming Major Interest Rate Benchmarks in Washington, D.C. “What has been accomplished over the past year is remarkable. At the same time, we have only a little over two and a half years until the point at which LIBOR could end, and the transition needs to continue to accelerate. The private sector needs to take on this responsibility, and we expect you to do so.”
Quarles told the group that the Fed “will expect to see an appropriate level of preparedness at the banks it supervises” and that as the Alternative Reference Rates Committee (ARRC) continues to make progress on industry-led approaches to the transition, “the transition paths away from LIBOR will become clearer for banks of all sizes.”