WASHINGTON—As the London Interbank Offered Rate (LIBOR) is set to stop publishing after 2021, Federal Reserve Vice Chair for Supervision and Chair of the Financial Stability Board Randal Quarles is warning the transition away from the rate could pose financial stability risks.
Quarles, speaking at the European Banking Summit, said he was concerned about institutions preparing to transition at different speeds. Similar concerns have also been expressed by other members of the Federal Reserve system, noted NAFCU, which met last week with members of the Fed..
The Alternative Reference Rate Committee, under the direction of the Federal Reserve Bank of New York, identified the Secured Overnight Financing Rate (SOFR) as the alternative to LIBOR. SOFR began publishing in 2018 and Quarles provided insights into the transition earlier this year, noting that it "should begin happening in earnest" to effectively manage risk.
Members of a House Financial Services subcommittee recently brought up a number of LIBOR concerns during a hearing on financial stability, including whether small institutions are prepared for the transition and contractual risk, NAFCU noted.
The Federal Home Loan Banks (FHLBs) have already begun issuing SOFR-linked securities and were recently instructed last week by the Federal Housing Finance Agency to soon stop investing in and entering into LIBOR-tied transactions.