Featured Product

    FSB Chair Outlines Progress on Reform of Interest Rate Benchmarks

    April 10, 2019

    Randal K. Quarles, the Chair of FSB and the Vice Chair for Supervision of FED, spoke about reforming major interest rate benchmarks, at the FSB roundtable in Washington DC. He highlighted that FSB has coordinated the international effort to reform interest rate benchmarks at the direction of G-20. This is an important effort across the globe, but nowhere is it of more importance than in the jurisdictions relying on LIBOR.

    Mr. Quarles noted that LIBOR was a very poorly structured rate; contributing banks were asked to submit quotes without any requirement of evidence of transactions or other facts to back them up, which made them susceptible to manipulation. With subsequent reforms, contributors provide this type of evidence where possible, but LIBOR is based on an underlying market with so few transactions that there is relatively little direct evidence they can provide. Many submitting banks are uncomfortable with this situation and some sought to stop their participation. Therefore, the official sector has had to step in to support LIBOR by securing a voluntary agreement with the remaining banks to continue submitting through 2021. Meanwhile, the official sector has convened national working groups to help develop alternative risk-free rates and navigate a very complicated transition.

    He added that banks should conduct at least as much due diligence on the reference rates that they use as they conduct on the creditworthiness of their borrowers. The national working groups convened by many of the FSB member authorities have performed that type of diligence with the Secured Overnight Financing Rate, or SOFR, and the risk-free rates identified in other jurisdictions. These alternative risk-free rates have been created or substantially reformed to ensure that robust, transaction-based rates that accurately represent well-defined underlying markets and are consistent with internationally-recognized standards are available.

    He highlighted that this month marks the one-year anniversary of SOFR and is close to the one-year anniversary of the other new risk-free rates. Over the year, new futures markets, cleared swap markets, and debt markets have been established based on these new rates. He highlighted that there are almost two and a half years until the point at which LIBOR could end and this transition needs to continue to accelerate. The private sector needs to take on this responsibility. The supervisory teams of FED are including the transition away from LIBOR in their monitoring discussions with large firms. FED will expect to see an appropriate level of preparedness at the banks it supervises. As the Alternative Reference Rates Committee (ARRC) continues to make progress on industry-led approaches to the transition, the transition paths away from LIBOR will become clearer for banks of all sizes. FSB has supported this transition globally while FSOC has supported the work of ARRC in the U.S.


    Related Link: Speech (PDF)

     

    Keywords: International, Banking, Securities, Interest Rate Benchmarks, LIBOR, SOFR, Risk-Free Rates, FED, FSB

    Related Articles
    News

    UK Regulators Announce Measures to Address Impact of COVID-19

    UK Regulatory Authorities published statements and guidance addressed to financial entities on dealing with the impact of the coronavirus (COVID-19) outbreak.

    March 26, 2020 WebPage Regulatory News
    News

    ISDA and Industry Request Delay in Timeline for Initial Margin Rules

    Considering the challenges posed by the COVID-19 pandemic, ISDA submitted a letter on behalf of 21 industry associations and their members requesting BCBS, IOSCO, and global regulators to suspend the current timeline for the initial margin phase-in.

    March 26, 2020 WebPage Regulatory News
    News

    FCA, FRC, and PRA Issue Joint Statement to Address Impact of COVID-19

    In response to the COVID-19 outbreak, FCA, the Financial Reporting Council (FRC), and PRA have announced a series of actions and made statements to support the continued functioning of capital markets in the UK.

    March 26, 2020 WebPage Regulatory News
    News

    EC Rule Corrects Regulation Supplementing Solvency II Directive

    EC published the EU Delegated Regulation 2020/442, which corrects the EU Delegated Regulation 2015/35 that supplements Solvency II Directive (2009/138/EC).

    March 26, 2020 WebPage Regulatory News
    News

    FED and FFIEC Offer Reporting Relief to Institutions Due to COVID-19

    FED and FFIEC announced regulatory reporting relief to financial institutions due to disruptions caused by the COVID-19.

    March 26, 2020 WebPage Regulatory News
    News

    EBA and ESMA Clarify Accounting Implications of COVID-19 Measures

    EBA and ESMA issued statements to address certain accounting implications of the economic support and relief measures adopted by EU member states in response to the COVID-19 crisis.

    March 25, 2020 WebPage Regulatory News
    News

    IOSCO and Securities Regulators Coordinate Responses to COVID-19

    IOSCO members are cooperating closely on their responses to the COVID-19-related disruption in capital markets.

    March 25, 2020 WebPage Regulatory News
    News

    US Agencies Issue Interim MMLF Rule, FED Updates FR Y-14 Forms

    In an effort to mitigate the impact of economic disruptions due to the COVID-19 outbreak, Money Market Mutual Fund Liquidity Facility (MMLF) was launched in the US to enhance the liquidity and functioning of money markets and to support the economy.

    March 25, 2020 WebPage Regulatory News
    News

    ESRB Updates List of Countercyclical Capital Buffers in March 2020

    ESRB updated the list of countercyclical capital buffer (CCyB) rates applicable in countries in the Eurosystem.

    March 24, 2020 WebPage Regulatory News
    News

    FHFA Amends Stress Testing Rule for Regulated Entities

    FHFA adopted a final rule that amends the stress testing rule, in line with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

    March 24, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4890