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May 11, 2021

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

On Tuesday, May 11, New York Fed President John Williams spoke at a webinar hosted by the Alternative Reference Rates Committee about key principles to keep in mind in the transition off the London Interbank Offered Rate (LIBOR).

He said:

“The past decade has shown us that the problem with using LIBOR as a benchmark interest rate has been an extremely risky one to have — and to solve.”

“It’s important that we focus not only on making the transition, but also on getting the transition right.”

“[W]e need to have a strong and deep foundation of reference rates that we are confident will be rock-solid, holding up our financial system under all contingencies, foreseen or unforeseen.”

In his speech, President Williams began by noting that “the endgame for LIBOR is clearly in sight.” He emphasized that this transition has been a “monumental feat” and acknowledged that progress was made possible by “a significant and coordinated effort” around the world and in the United States.

He went on to say that when preparing for the transition, “We must take great care, because the decisions made today will determine if the LIBOR transition is ultimately successful.” He added that it’s essential “we move forward in a way that ensures that we do not have to go through such a transition again in our lifetimes.”

Discussing the ARRC’s recommendation of SOFR as the main U.S. dollar reference rate for the post-LIBOR world, President Williams said: “No other rate has the depth of transactions of the repo market that underlies SOFR, which proved to be resilient even during the market stress last spring. That is essential as a foundation for the enormous markets such as the hundreds of trillions of dollars of derivatives currently based on LIBOR.”

He concluded by saying: “As each of you make your own decisions around the LIBOR transition, realize that together, you are drawing the blueprint that will serve as the foundation for our global financial system.”

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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