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:
- Brian Smith, Deputy Assistant Secretary for Federal Finance at the Treasury. Mr. Smith stated Treasury is taking steps towards addressing the tax implications of updating contacts referencing LIBOR.
- Mark Van Der Weide, General Counsel at the FRB. Mr. Van Der Weide underscored the FRB's sponsorship of workshops concerning the use of credit-sensitive alternative reference rates for loans.
- John Coates, Acting Director of the Division of Corporation Finance of the SEC. Mr. Coates outlined guidance and supervision issued by several SEC divisions and offices concerning the transition from LIBOR.
- Kevin Walsh, Deputy Comptroller for Market Risk Policy at the OCC. Mr. Walsh (i) outlined expectations the OCC has for banks concerning their preparations for the transition, (ii) highlighted the importance of incorporating fallback clauses into contracts and (iii) expressed support for the Adjustable Interest Rate (LIBOR) Act of 2021.
- Dan Coates, Senior Associate Director of Risk Analysis and Modeling in the Federal Housing Finance Agency ("FHFA") Division of Federal Home Loan Bank Regulation. Mr. Coates highlighted the agency's creation of ten working groups to facilitate the FHFA's review and oversight of the entities under its conservatorship as it pertains to the transition from LIBOR.
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.
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