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

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004