Progress Report on the Transition
from U.S. Dollar LIBOR

March 21, 2021 - The Alternative Reference Rates Committee (ARRC) today issued its progress report on the transition away from U.S. Dollar LIBOR. The report came out shortly after announcements from U.S. regulators and LIBOR's administrator, which clarified the end dates for use of USD LIBOR as well as when it will cease publication.

While the picture varies by different market segments, it is clear there are still many challenges to a successful transition. "Although the FRNs and consumer mortgage markets are already on their way to transitioning from LIBOR, most other cash products are not. While a few banks have begun to offer SOFR-based bilateral business loans and are in the process of moving their new business away from LIBOR, most U.S. banks are continuing to offer LIBOR as their primary or sol floating-rate business loan option. Most worrying, many borrowers report that lenders are not communication with them about LIBOR alternatives. The two charts below show recent responses to questions about lender outreach to members of the ARRC's Nonfinancial Corporate Working Group, which has roughly 90 nonfinancial corporate members representing firms of all sizes, including some very large US nonfinancial corporations. Among members responding to the survey questions, roughly two-thirds reported that they are not being offered any alternatives to LIBOR, and the same proportion report that banks are not even prospectively discussing the potential alternatives that might be offered to them." (pages 12-13 of the report).

At the very end of the report, the ARRC outlines their objectives and priorities for this crucial year while clearly warning that the time to act is now: "Market participants need to be actively taking steps to support the transition, and doing so with tools available now and in a manner that does not reintroduce the very vulnerabilities that have prompted this very significant transition of financial markets." (page 17).

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