Structured Finance Association: Signing of LIBOR Legislation in ‘Omnibus’ A ‘Major Victory’ For Millions of Americans

The Structured Finance Association (SFA) applauded President Joe Biden for signing the Consolidated Appropriations Act, 2022 – also known as the “omnibus” government funding bill – into law. The bill includes language that will ease the transition away from the London Inter-Bank Offered Rate (LIBOR), which is the benchmark index currently used to determine the interest rate that investors receive on floating-rate bonds and consumers and businesses pay on some loans. Inclusion of the language comes after U.S. Senators Jon Tester (D-Mont.), Thom Tillis (R-N.C.), Senate Banking Committee Chairman Sherrod Brown (D-Ohio), Ranking Member Pat Toomey (R-Penn.), Jack Reed (D-R.I.), Bill Hagerty (R-Tenn.), Mark Warner (D-Va.), and Mike Rounds (R-S.D.) introduced the Adjustable Interest Rate (LIBOR) Act earlier this month and follows House passage of companion legislation in December by a vote of 415 to 9.

“This is a major victory and will prevent confusion and disruption for millions of American households and businesses,” said Michael Bright, CEO of the Structured Finance Association. “By providing a smooth transition away from LIBOR, this law sets a clear path forward for the roughly $16 trillion of contracts with no realistic means to be renegotiated or amended – including fixed income bonds, mortgages, student loans, and business loans. We appreciate the bipartisan leadership in both the Senate and House and applaud President Biden for signing this legislation into law.”

In November, Bright testified before the Senate Banking Committee, telling 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.

Bright, who penned an op-ed in the Financial Times calling for federal legislation to “end this saga once and for all,” told the Senate Banking Committee in 2021: “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 and investor disruption. The many other alternatives examined were simply inoperable. We now see that, absent federal legislation, retirees and savers who hold trillions of dollars of impacted bonds will be forced to absorb tens of billions of dollars in legal costs.”

SFA was joined by 22 other financial services trade associations in calling for enactment of the legislation. Text of the letter is available here.