WASHINGTON–The Treasury Secretary and the heads of federal agencies overseeing financial markets have signed a joint letter in response to concerns raised that nonfinancial corporations are not, in most cases, being offered alternatives to the soon-to-be-defunct LIBOR reference rate.
In addition to Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, SEC Chair Gary Gensler, Federal Reserve Bank of New York President and CEO John C. Williams, and Commodity Futures Trading Commission Acting Chairman Rostin Behnam all signed the letter following a meeting between themselves and representatives of nonfinancial corporate stakeholders related to the ongoing transition away from LIBOR, now scheduled to expire Dec. 31, 2021 (with some existing contracts allowed to use LIBOR until June 30, 2023).
The nonfinancial corporate stakeholders met earlier this year and included Thomas Hunt of the Association for Financial Professionals, Thomas C. Deas of the National Association of Corporate Treasurers, and Thom Quaadman of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. The organizations raised concerns that non-financial corporates (NFCs) were challenged to obtain loan agreements based on alternatives to LIBOR, including the Secured Overnight Financing Rate (SOFR) – even after those NFCs had indicated that loan agreements based on SOFR would be their preferred choice.
The group requested a meeting with the federal regulators to express their concerns in person.
‘Critical Juncture’
“The transition is at a critical juncture, and we were thus concerned to hear your members report that nonfinancial corporations are, in most cases, not yet being offered such alternatives despite the short amount of time left in the transition,” the federal agencies’ letter states. “Accordingly, we invite you to continue to share your experiences and views with us as the transition, and the dialogue with your lenders, continues.”
SOFR was developed by a group sponsored by the Federal Reserve the Federal Reserve Bank of New York and it has developed as the favored replacement for LIBOR.
In the letter, the regulators acknowledged the LIBOR transition presents operational, technological, accounting, tax and legal challenges.
“The official sector has consistently supported a transition from LIBOR that leads to a more stable financial system, while also meeting the needs of all the parties who will be impacted by it, including nonfinancial corporate and noncorporate business borrowers, consumers, and investors, as well as financial institutions,” the federal agencies’ letter continues. “We have stressed the importance of reference rates built on deep, liquid markets that are not susceptible to manipulation.”