Federal Legislation for LIBOR transition will help reduce litigation risks for market participants and provide clarity for longer dated contracts.
NEW YORK / LONDON: SOFR Academy LLC, a U.S. based education technology firm and market data provider with clients in more than 5 countries today released the following statement on testimony delivered by Federal Reserve Chairman Jerome H. Powell at a U.S. House Committee on Financial Services hearing in which Powell expressed support for federal legislation to ease the transition away from the London Inter-Bank Offered Rate (LIBOR).
“LIBOR transition is a key issue for both Wall Street and Main Street because it not only impacts institutional products like derivatives but also consumer products like adjustable-rate mortgages, certain credit cards and student loans. Potentially trillions of dollars of financial instruments did not anticipate LIBOR ending and therefore lack adequate fallback language which creates some confusion for market participants holding these longer dated contracts” said Marcus Burnett, Director of SOFR Academy, and in remarks to Bloomberg news. “We are supportive of Chairman Powell’s comments yesterday and agree that federal legislation is the best solution to this problem. SOFR Academy will be working hard with industry leaders to provide corresponding education and training on this issue to support the stability and soundness of the financial system through this complicated and high impact transition.”
During the hearing, U.S. Representative Brad Sherman (D-Cali.), a senior member of the committee, asked Powell: “In your view, is it necessary to have federal legislation to have a smooth transition after June 2023 when LIBOR is no longer published?”
Powell responded: “Yes, we think it will be. As you know, many LIBOR contracts are going to run off before then, but there will be a hard tail, as we say, and we do think federal legislation is the best answer.”
Pushed by Sherman on “those who think the private sector can just invent a synthetic LIBOR” that will “solve the problem,” Powell added: “No, federal legislation creating a path for a backup would be the best solution, we think.”
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