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July 13, 2020

Key Takeaways from President Williams’s Speech on the Transition Away from LIBOR

On Monday, July 13, New York Fed President John Williams spoke at a webinar hosted by the Bank of England and the New York Fed about why the transition away from the London Interbank Offered Rate (LIBOR) is so important, and what still needs to be done between now and the end of next year.

He said:

“The ongoing transition away from LIBOR has ramifications for institutions, markets, and regulators across the globe, making cooperation at the international level of critical importance.”

“The urgency to switch to more robust reference rates and deal with legacy contracts has not gone away; if anything, this issue has become more pressing.”

“There are now 537 days until the existence of LIBOR can no longer be assured. The clock is still ticking, and it’s critical that regulators and institutions continue to work together to ensure we are all ready for January 1, 2022.”

In his speech, President Williams stressed that the transition away from LIBOR is critical for “the safety and soundness of the financial system” and that despite the challenges faced as a result of the coronavirus, “transitioning away from LIBOR continues to be of paramount importance.”

Discussing the reasons for the transition, he said, “LIBOR submissions from banks are largely based on judgment, rather than real numbers, making the rate vulnerable to manipulation and fraud, and bringing increased risk with its use in financial contracts.”

He emphasized that a huge amount of progress has been made over the past year: “In the United States, there have been numerous consultations issued, a raft of recommendations published, and a variety of new tools developed, all to support the transition to more robust reference rates.” He highlighted that in March “the New York Fed started the publication of SOFR averages and a SOFR index.” He said that, “if the pandemic has confirmed one thing about financial benchmarks, it’s the resilience of robust reference rates, including SOFR.”

Despite success, President Williams warned that “we cannot afford to be complacent. With just 537 days left, there’s still much to accomplish.” He added, “it’s critical that market participants meet the milestones set out in the best practices and have a clear understanding of any outstanding exposure they have to LIBOR.”

Read the full speech.

This article was originally published by the New York Fed on Medium.

The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


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