CRS Recaps Key Issues on LIBOR Transition
The Congressional Research Service recapped the key issues in policymakers' "efforts to transition away from the use of LIBOR in financial products in order to avoid disruption."
In its review, CRS described (i) "the benchmark interest rate underpinning many financial contracts," (ii) the scandal that led to questioning sustained use of LIBOR, (iii) the steps policymakers have taken to address these issues, (iv) ongoing risks, and (v) the potential use of the Secured Overnight Financing Rate ("SOFR") as a possible replacement benchmark.
CRS highlighted the following key events in the transition away from LIBOR:
- The Federal Reserve creating the Alternative Reference Rates Committee ("ARRC"), a private group of market participants to oversee the LIBOR transition;
- U.S. Policymakers supporting ARRC recommendations, including its series of voluntary best practices to facilitate this transition;
- Bank Regulators releasing a joint statement that requires banks to stop entering into new contracts using LIBOR by the end of 2021;
- The SEC asking companies to determine and disclose whether LIBOR poses any material risks;
- The CFPB proposing a rule in June 2020 to allow lenders to replace LIBOR in certain consumer and mortgage loans;
- The CFTC issuing no-action letters providing that LIBOR-related amendments to legacy swaps do not create new swaps; and
- The IRS clarifying that LIBOR-related amendments to legacy contracts do not have tax consequences.
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