Structured Finance Association CEO to Appear Before Senate Banking Committee on LIBOR Transition
Bright Will Tell Congress $16 Trillion in ‘Tough Legacy” LIBOR Contracts ‘Impact a Broad Range of American Households and Communities,’ Pose ‘Serious Risk’ to Financial System Absent Legislative Action
At a U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing on Tuesday, November 2, Structured Finance Association (SFA) CEO Michael Bright will tell Congress the roughly $16 trillion in “tough legacy” contracts that have no realistic means to be renegotiated and amended prior to the cessation of LIBOR “impact a broad range of American households and communities” and pose a “serious risk to the financial system” absent legislative action. SFA has been a leading voice in the massive effort to smoothly transition away from LIBOR and was joined by other leading financial services industry groups in announcing support for House-passed legislation in July.
“The cessation of LIBOR has been an enormous challenge overhanging the capital markets since 2017,” Bright will testify. “At that time, the Financial Conduct Authority, LIBOR’s regulator based in London, announced that the production of LIBOR would likely end in 2021. Over the subsequent years, extensive progress has been made to move away from these rates. Today, out of over $200 trillion of contracts that are tied to LIBOR in the U.S., nearly all have managed to put in place a robust plan for transition. Even with this multi-year effort, however, SFA estimates that roughly $16 trillion of contracts have no realistic means to be renegotiated and amended. These so-called ‘tough legacy’ contracts were made prior to knowing that LIBOR was going away. They include mortgages, student loans, and business loans, and therefore impact a broad range of American households and communities. While small compared to the overall size of outstanding LIBOR contracts, $16 trillion is still a large sum, posing serious risk to the financial system.”
Bright, who earlier this year penned an op-ed in the Financial Times calling for federal legislation to “end this saga once and for all,” will tell the committee: “After lengthy deliberation and debate, a consensus position across the entire market has emerged that a federal safe harbor for the transition of these tough legacy contracts is the only option to avoid costly litigation and consumer disruption. The many other alternatives examined were simply inoperable. We now see that, absent federal legislation, retirees and savers will be forced to absorb tens of billions of dollars in legal costs.”
“[L]et me thank you all again for your focus on helping to transition our markets and economy away from LIBOR once and for all. This work is critical to ensuring that all investors, consumers and businesses are treated equally and fairly. It also will help to prevent billions of dollars of potential litigation, where no one wins but savers and retirees foot the bill,” Bright will conclude.
Topic: The Libor Transition: Protecting Consumers and Investors
Date: Tuesday, November 2, 2021
Time: 10:00 a.m. ET
Location: Dirksen Senate Office Building, Room 538
Livestream: Available here