Policy Issues

LIBOR REFORM

ISSUE

With the London Interbank Offer Rate (LIBOR) index rate set to expire at the end of 2021, regulators are working to develop an alternative reference rate. In the U.S., the Federal Reserve's Alternative Reference Rates Committee (ARRC) is coordinating this process.

Position

The Roundtable’s RECPAC has formed a LIBOR Working Group to work toward the development and implementation of an effective new replacement benchmark that does not impair liquidity, needlessly increase borrowing costs, or cause market disruptions.

The Working Group is addressing concerns about the potential tax consequences of changing the benchmark in a variety of financial instruments and has submitted a comment letter to the Treasury requesting clarification.

Background

With the London Interbank Offer Rate (LIBOR) index rate set to expire at the end of 2021, regulators are working to develop an alternative. LIBOR is an important reference rate for commercial real estate and the broader economy, underlying approximately $373 trillion worth of cash and derivative contracts globally.

LIBOR's credibility was badly undermined a decade ago by a rate-manipulation scandal. These illegal actions damaged the public's trust in LIBOR, financial markets and institutions. The United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced last year that it will phase out the global borrowing index by 2021.