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ARTICLE · 08 MARCH 2018

ARRC Outlines Plan To Transition Away From LIBOR

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In the latest report, the ARRC provided reasons for selecting SOFR as the LIBOR alternative and encouraged voluntary adoption of the rate.

United StatesFinance and Banking
Lary Stromfeld
Lary Stromfeld
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The Alternative Reference Rates Committee ("ARRC") outlined a plan for transitioning market reliance away from LIBOR, a move urgently needed due to the scarcity in underlying transactions. The ARRC previously recommended the Secured Overnight Financing Rate ("SOFR"), a Treasury repo index, as an alternative to LIBOR. In the latest report, the ARRC provided reasons for selecting SOFR as the LIBOR alternative and encouraged voluntary adoption of the rate.

In the report, the ARRC revealed that market activity referencing U.S. dollar LIBOR is 25% higher than previous estimates, and that around $200 trillion in U.S. dollar-based derivatives and loans are based on LIBOR. The FSB and FSOC have been wary of the decline in wholesale unsecured-term money market funding by banks, and had convened the ARRC to review the risks this trend poses. The ARRC endorsed the Secured Overnight Financing Rate ("SOFR") as a replacement; SOFR will be published daily by the Federal Reserve

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