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    US Agencies Issue FAQ on LIBOR Transition Impact on Regulatory Capital

    July 29, 2021

    US Agencies published answers to the frequently asked questions (FAQ) addressing the impact of LIBOR transition on regulatory capital instruments. These agencies are the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (FED), and the Office of the Comptroller of the Currency (OCC). Additionally, the Alternative Reference Rates Committee (ARRC) announced that it is now formally recommending CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) term rates, following the completion of a key change in interdealer trading conventions on July 26, 2021 under the SOFR First initiative.

    The ARRC’s formal recommendation of SOFR Term Rates is a major milestone in the transition away from USD LIBOR, providing market participants with an essential transition tool and marking the completion of the Paced Transition Plan that the ARRC outlined in 2017 and has been working toward since. The successful SOFR First convention change, along with the continued growth in SOFR cash and derivatives markets, has allowed ARRC to recommend SOFR Term Rates, consistent with the principles and indicators it established to do so. ARRC also released a factsheet outlining key steps leading to this point, SOFR’s strengths, and upcoming milestones. This formal recommendation follows the ARRC’s July 21 announcement of conventions and recommended best practices for the use of the SOFR Term Rates. Market participants can now employ these materials when using the SOFR Term Rates in legacy fallbacks and new contracts to prepare for the end of LIBOR.

     

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    Keywords: Americas, US, Banking, Securities, LIBOR, Benchmark Reforms, Alternative Reference Rates Committee, SOFR, Risk Free Rates, LIBOR Transition, ARRC, FAQ, Derivatives, Regulatory Capital, Basel, US Agencies

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