The U.S. House Committee on Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets (the "Subcommittee") considered legislation and testimony concerning the transition from the London Inter-Bank Offered Rate ("LIBOR").
At a hearing titled "The End of LIBOR: Transitioning to an Alternative Interest Rate Calculation for Mortgages, Student Loans, Business Borrowing, and Other Financial Products," the Subcommittee considered the Adjustable Interest Rate (LIBOR) Act of 2021. The Adjustable Interest Rate (LIBOR) Act of 2021 would allow contracts referencing LIBOR without adequate fallback provisions upon LIBOR's discontinuation, to reference the Secured Overnight Financing Rate ("SOFR") without the need for an amendment or the concern of becoming subject to litigation. The legislation would require the Federal Reserve Board ("FRB") to establish regulations regarding how SOFR or an adjusted SOFR should be used as a replacement reference interest rate for certain LIBOR-based contracts.
In addition, the Subcommittee heard testimony from:
SIFMA and the Structured Finance Association expressed their support for federal legislation in order to address the circumstances in which contracts cannot be transitioned from LIBOR with ease as a result of legal or regulatory issues. The industry associations stated that such federal legislation should provide (i) certainty of outcomes, (ii) fairness and equitable outcomes, (iii) the avoidance of litigation gridlock and (iv) market stability and the preservation of liquidity.