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Fed adopts final rule to replace LIBOR
The Federal Reserve Board Friday adopted a final rule that identifies benchmark rates based on the Secured Overnight Financing Rate (SOFR) to replace the London Interbank Offered Rate (LIBOR) in certain financial contracts after June 30, 2023. NAFCU supported the Fed’s decision to use SOFR-based benchmark rates as the replacement but had asked for the board to reduce implementation costs and complexities.
The final rule was drafted with direction from the NAFCU-backed LIBOR Act – which was included in the omnibus spending package passed earlier this year and provided a uniform, nationwide solution for replacing references to LIBOR in existing contracts that do not have an adequate fallback provision.
The Fed noted in its announcement that the final adopted rule is substantially similar to what was proposed, with “certain clarifying changes made in response to comments.” The changes include:
· restating the NAFCU-sought safe harbor protections contained in the LIBOR Act for selection or use of the replacement benchmark rate selected by the Fed; and
· clarifying who would be considered a "determining person" able to choose to use the replacement benchmark rate selected by the Board for use for certain LIBOR contracts.
Consistent with the LIBOR Act, the final rule also ensures that LIBOR contracts adopting a benchmark rate selected by the Fed will not be interrupted or terminated following LIBOR's replacement.
NAFCU will provide credit unions with additional resources, including a Final Regulation Alert detailing the Fed’s final rule, to help phase out LIBOR and implement the new benchmark rates.