Comments are due Aug. 29 on a Federal Reserve proposal setting default rules for certain contracts that use the London Interbank Offered Rate (LIBOR) but which won’t expire before LIBOR is discontinued after June 30, 2023.
The proposed rule, released last week by the Federal Reserve Board, would implement the Adjustable Interest Rate (LIBOR) Act, passed by Congress and enacted earlier this year.
The act is designed to minimize legal and operational risks and adverse economic impacts associated with the transition away from LIBOR. It is also aimed at providing greater certainty to borrowers, lenders, bondholders, and consumers by protecting them from disruptions after LIBOR goes away completely in less than a year.
The Fed proposal identifies separate Fed-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise is a party, and all other affected contracts. The Fed said that as required by the law, each proposed replacement rate is based on the Secured Overnight Financing Rate (SOFR), a LIBOR alternative developed by the Federal Reserve and the Federal Reserve Bank of New York.