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House Financial Services Committee Considers Legislative LIBOR Fix – Finance and Banking – United States – Mondaq News Alerts

United States: House Financial Services Committee Considers Legislative LIBOR Fix

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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

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
    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
    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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