Lending in Libor alternatives 'not where it should be' - NY Fed general counsel

·2 min read

By John McCrank

NEW YORK, Sept 15 (Reuters) - Lending banks must quickly move to alternative interest rates to Libor and push their borrowers to do the same, as the end-of-year deadline for firms to stop using the tarnished rate for new exposures nears, the general counsel of Federal Reserve Bank of New York said on Wednesday.

Regulators have mandated the replacement of the London Interbank Offered Rate, or Libor, which is linked globally to trillions of dollars of contracts, from mortgages to credit cards, after banks were fined billions of dollars for colluding to rig the benchmark.

The move is one of the biggest market switches in decades, and one of the main concerns is inertia in the syndicated loan market ahead of the Dec. 31 deadline, said Michael Held, the New York Fed's general counsel.

"Lending in alternative rates is not where it should be at this point," he said at an International Swaps and Derivatives Association conference.

Held pointed to a recent industry survey https://www.centerforcapitalmarkets.com/letter/joint-trades-comments-on-transition-to-the-secured-overnight-financing-rate in which almost two-thirds of nonfinancial borrowers said their banks were not offering them non-LIBOR borrowing alternatives, or even talking to them about alternatives.

"That's a problem not just for the banks that don't seem to be moving off of Libor, but also for the borrowers who will need time to rework their internal systems and processes before using a new rate," he said.

Regulators have warned of the "considerable operational, technological, accounting, tax, and legal challenges" that the Libor transition presents for Main Street companies.

"Those challenges will not be solved overnight," Held said.

Other concerns include making sure the alternate rates banks transition to are appropriate for their funding models and customer needs, as well as making sure existing Libor-linked contracts that mature after mid-2023 include fallback language on transitioning to another rate, he said. (Reporting by John McCrank, Editing by Nick Zieminski)

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