Federal Reserve Board Adopts Final Version Of LIBOR Transition Rule

As previously noted in our August 30, 2022 alert, the Board of Governors of the Federal Reserve System (the FRB) published a proposed regulation to implement the Adjustable Rate (LIBOR) Act (the Act). As explained in the earlier alert, the purpose of the Act was to facilitate the transition away from the use of LIBOR as an index for variable rate loans due to LIBOR's scheduled sunset on June 30, 2023. The final regulation, Regulation ZZ, was released on December 16, 2022. While Regulation ZZ will technically become effective 30 days after its publication in the Federal Register, in practice, Regulation ZZ will take effect in the period around June 30, 2023, as LIBOR sunsets.

Regulation ZZ is substantially similar to the FRB's proposed regulation. As such, Regulation ZZ largely follows the text of the Act by providing a mechanism that will, by operation of law, replace contractual references to LIBOR with the benchmark replacements described in Regulation ZZ. For