5.3.20
The Federal Reserve has decided not to use the $600 billion aid for small and midsize businesses to promote the replacement for the London interbank offered rate (LIBOR) which is being transitioned out in 2021. The recent action highlights some of the challenges many industry participants are facing in regards to transitioning to a new short-term interest rate. While some market experts already doubted the timeline of transitioning away from LIBOR towards the Secured Overnight Financing Rate (SOFR), the Fed’s preferred rate, the pandemic has put that timeline into even further doubt. Some say that the pandemic has put too much of a burden on banks who would not be able to effectively transition away from LIBOR during a crisis, “It’s like rebuilding the engine while the car is barreling down the highway.” said Brian Reynolds from Reynolds Strategy LLC. However, not everyone agreed with the Fed’s decision and said that the Fed blew a chance to reduce the amount of LIBOR-based debt that is accumulating. “They’ve blown the opportunity for institutions that do have the ability to use SOFR to test drive their systems,” said Anne Beaumont, a partner at Friedman Kaplan Seiler & Adelman LLP.
Read more via WSJ here.