WASHINGTON—With the widely used London Interbank Offered Rate (LIBOR) set to stop publishing at the end of this year, a House Financial Services subcommittee held a hearing this week to discuss where things stand on the transition to an alternative interest rate calculation for the numerous financial products to which it is indexed.
In a letter sent ahead of the hearing, NAFCU Vice President of Legislative Affairs Brad Thaler offered support for efforts to ease the transition.
"With LIBOR sunsetting this year, many credit unions are in the process of transitioning their suite of financial products away from the LIBOR index," Thaler noted. "While our credit union members report they are no longer originating new loans that rely on LIBOR as a reference rate, some credit unions still have a small number of legacy LIBOR contracts in their consumer loan portfolios, some of which do not contain fallback language that would allow for the contract to be amended and continued when LIBOR sunsets.
"To ensure a smooth transition from LIBOR, and to prevent any unneeded disruption during this time of economic uncertainty, we support Congress taking action through legislation to establish a process for these legacy LIBOR contracts to be appropriately updated so they continue to function," Thaler added.
Moving to SOFR
The Secured Overnight Financing Rate (SOFR) was identified as the alternative to LIBOR by the Alternative Reference Rate Committee. The Federal Reserve has consistently encouraged financial entities to prepare for the transition and cautioned stability risks that could arise from the transition. Several entities, including the Treasury Department, CFPB, federal financial regulators and the Federal Housing Finance Agency, have released guidance and rules to assist in the transition.
NAFCU Chief Economist and Vice President of Research Curt Long offered additional details for credit unions to consider as they transition away from LIBOR available here.