United States: House Financial Services Committee Considers Legislative LIBOR Fix
19 April 2021
Cadwalader, Wickersham & Taft LLP
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The U.S. House Committee on Financial Services Subcommittee on
Investor Protection, Entrepreneurship and Capital Markets (the “Subcommittee”) considered legislation and testimony
concerning the transition from the London Inter-Bank Offered Rate
(“LIBOR”).
At a hearing titled “The End of LIBOR: Transitioning to an
Alternative Interest Rate Calculation for Mortgages, Student Loans,
Business Borrowing, and Other Financial Products,” the
Subcommittee considered the Adjustable Interest Rate (LIBOR) Act of 2021.
The Adjustable Interest Rate (LIBOR) Act of 2021 would allow
contracts referencing LIBOR without adequate fallback provisions
upon LIBOR’s discontinuation, to reference the Secured
Overnight Financing Rate (“SOFR”) without the need for an
amendment or the concern of becoming subject to litigation. The
legislation would require the Federal Reserve Board
(“FRB”) to establish regulations regarding how SOFR or an
adjusted SOFR should be used as a replacement reference interest
rate for certain LIBOR-based contracts.
In addition, the Subcommittee heard testimony from:
- Brian Smith, Deputy Assistant Secretary for
Federal Finance at the Treasury. Mr. Smith stated Treasury is
taking steps towards addressing the tax implications of updating
contacts referencing LIBOR. - Mark Van Der Weide, General Counsel at the
FRB. Mr. Van Der Weide underscored the FRB’s sponsorship
of workshops concerning the use of credit-sensitive alternative
reference rates for loans. - John Coates, Acting Director of the Division
of Corporation Finance of the SEC. Mr. Coates outlined
guidance and supervision issued by several SEC divisions and
offices concerning the transition from LIBOR. - Kevin Walsh, Deputy Comptroller for Market
Risk Policy at the OCC. Mr. Walsh (i) outlined expectations
the OCC has for banks concerning their preparations for the
transition, (ii) highlighted the importance of incorporating
fallback clauses into contracts and (iii) expressed support for the
Adjustable Interest Rate (LIBOR) Act of 2021. - Dan Coates, Senior Associate Director of Risk
Analysis and Modeling in the Federal Housing Finance Agency
(“FHFA”) Division of Federal Home Loan Bank
Regulation. Mr. Coates highlighted the agency’s creation
of ten working groups to facilitate the FHFA’s review and
oversight of the entities under its conservatorship as it pertains
to the transition from LIBOR.
SIFMA and the Structured Finance Association expressed their
support for federal legislation in order to address the
circumstances in which contracts cannot be transitioned from LIBOR
with ease as a result of legal or regulatory issues. The industry
associations stated that such federal legislation should provide
(i) certainty of outcomes, (ii) fairness and equitable outcomes,
(iii) the avoidance of litigation gridlock and (iv) market
stability and the preservation of liquidity.
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