Federal Reserve Board Supports Release of Proposal and Supervisory Statements for LIBOR End Date

The Federal Reserve Board recently welcomed and supported the release of a proposal and supervisory statements that would enable a clear end date for U.S. Dollar (USD) LIBOR and would promote the safety and soundness of the financial system. The announcements by regulators in the United States and United Kingdom and 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.

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 and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and 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 and relevant authorities in other jurisdictions, consider whether and, 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 and market integrity.

Concurrently, the Federal Reserve Board, Office of the Comptroller of the Currency, and 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 and soundness risks. Given that, the banking agencies encourage banks to stop entering into those new contracts by end-2021.

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