The FED on Monday welcomed & supported the release of a proposal & supervisory statements that would enable a clear end date for U.S. Dollar (USD) LIBOR & would promote the safety & soundness of the financial system. The announcements today by regulators in the United States & United Kingdom & by the benchmark administrator for LIBOR together lay out a path forward in which banks should stop writing new USD LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before LIBOR stops.
“Today’s plan ensures that the transition away from LIBOR will be orderly & fair for everyone—market participants, businesses, & consumers,” said Vice Chair for Supervision Randal K. Quarles.
Under the proposal from LIBOR’s administrator, ICE Benchmark Administration Limited (IBA) will consult in early December on its intention to cease the publication of the one week & two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, & the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.
LIBOR’s regulator, the United Kingdom’s Financial Conduct Authority (FCA), also issued a statement welcoming these developments. The FCA indicated it will, in coordination with US authorities & relevant authorities in other jurisdictions, consider whether &, if so, how to most appropriately limit new use of USD LIBOR by supervised entities in the UK, consistent with the FCA’s objectives of protecting consumers & market integrity.
Concurrently, the FED, Office of the Comptroller of the Currency, & the Federal Deposit Insurance Corporation released a statement explaining that the June 30, 2023 cessation date for which IBA is consulting would allow time for “legacy contracts”—USD LIBOR transactions executed before January 1, 2022—to mature. The guidance further notes that entering into new USD-LIBOR-based contracts creates safety & soundness risks. Given that, the banking agencies encourage banks to stop entering into those new contracts by end-2021.
“These announcements represent critical steps in the effort to facilitate an orderly wind-down of USD LIBOR,” said John Williams, President of the Federal Reserve Bank of New York, in his capacity as Co-Chair of the Financial Stability Board’s Official Sector Steering Group. “They propose a clear picture of the future, to help support transition planning over the next year & beyond.”
For the purposes of language adopted by the International Swaps & Derivatives Association, this statement should not be read as announcing that the LIBOR benchmark has ceased, or will cease, to be provided permanently or indefinitely or that it is not, or no longer will be, representative.
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Source: Federal Reserves
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