Federal Reserve Bank of New York President John C. Williams urged market participants to prepare for the end of LIBOR. He estimated that LIBOR only has 901 days left.
Mr. Williams noted the progress that has been made since the Secured Overnight Financing Rate ("SOFR") was selected by the Alternative Reference Rates Committee ("ARRC") to serve as an alternative to the U.S. dollar LIBOR in 2017. While SOFR futures and swap markets can be accredited for forward-looking term rates, Mr. Williams emphasized, financial institutions should not wait for a SOFR term rate in order to transition away from SOFR.
Some of the recent market developments with respect to the impending end of LIBOR include:
- the International Swaps and Derivatives Association developing contingencies for derivatives products should a U.S. dollar LIBOR rate no longer be available;
- the SEC requiring public issuers to disclose their LIBOR-related risks; and
- the ARRC publishing potential adjustable-rate mortgages ("ARMs") that draft both fallback language for new ARMs referencing U.S. dollar LIBOR and a procedure for using SOFR in new ARMs.
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