Joint Trades Letter on the Adjustable Interest Rate (LIBOR) Act

Summary

SIFMA and joint trade associations provided comments to the Committee on Financial Services and Subcommittee on Investor Protection, Entrepreneurship and Capital Markets in support of the Adjustable Interest Rate (LIBOR) Act to address “tough legacy” contracts that currently reference LIBOR.

See also: House Financial Services Committee July 2021 Markup

Excerpt

July 27, 2021

The Honorable Maxine Waters

Chairwoman

Committee on Financial Services

U.S. House of Representatives

Washington, DC 20510

The Honorable Patrick McHenry

Ranking Member

Committee on Financial Services

U.S. House of Representatives

Washington, DC 20510

The Honorable Brad Sherman

Chairman

Subcommittee on Investor Protection, Entrepreneurship and Capital Markets

U.S. House of Representatives

Washington, DC 20510

The Honorable Bill Huizenga

Ranking Member

Subcommittee on Investor Protection, Entrepreneurship and Capital Markets

U.S. House of Representatives

Washington, DC 20510

Dear Chairwoman Waters, Ranking Member McHenry, Rep. Sherman, and Rep. Huizenga:

The undersigned organizations write in support of the Adjustable Interest Rate (LIBOR) Act to address “tough legacy” contracts that currently reference LIBOR.

In June 2023, all tenors of US dollar LIBOR, one of the most important financial benchmarks that underpins nearly $200 trillion in financial contracts, will cease to be published. As a result, trillions of dollars of hard to modify financial contracts, securities, and loans that use LIBOR that are unable, before such end date, to either convert to a non-LIBOR rate or be amended to add adequate fallback language will potentially be left outstanding. Currently, there is no realistic ability to amend this group of contracts – commonly referred to as “tough legacy” – posing a significant risk to the financial system and the underlying borrowers, investors, and banks.

The Alternative Reference Rates Committee (ARRC)–developed legislative language that was recently implemented in New York and Alabama has helped address some uncertainty with these legacy contracts. However, a state-by-state piecemeal approach does not provide the necessary comprehensive protections that is achievable at the federal level given importance of the issue and the very limited time remaining until LIBOR’s end in less than two years. A patchwork of varying state laws or non-existent state legislation could compromise the very intent to provide a smooth transition. In addition, at recent hearings before the House Financial Services Committee, Treasury Secretary Janet Yellen, Jay Powell, Chair of the Federal Reserve, and Randal Quarles, Vice Chair of the Federal Reserve endorsed federal legislative action.

We certainly do not take lightly the amending of contracts; however, in this unique, once-in-a-lifetime financial event we find no other feasible option for remediation of these contracts without the risk of significant contractual uncertainty. As such, we commend the Committee for putting forward legislation that 1) Provides a solution for those contracts that have insufficient fallback and cannot otherwise be amended among the parties; 2) Limits the scope of legislation so there is no interference with any contracts that have agreed fallback provisions or that can readily be amended by the contracting parties; 3) Offers uniform, equitable treatment for all U.S. contracts that fall

under the federal legislation; and 4) Creates a safe harbor from litigation for parties that are covered by the legislation and prevents otherwise inevitable litigation costs and gridlock.

We thank Representative Sherman and the Committee for providing a meaningful solution that offers fair, equitable and consistent treatment for all tough legacy contracts in support of the LIBOR transition. Thank you for your consideration and the opportunity to share our views on this matter. Due to the highly complex nature of this important legislation, we look forward to working with Members of Congress to ensure all the technical aspects will function as intended.

Sincerely,

Structured Finance Association (SFA)

Securities Industry and Financial Markets Association (SIFMA)

Bank Policy Institute

Financial Services Forum

American Bankers Association (ABA)

Commercial Real Estate Finance Council

Investment Company Institute

Mortgage Bankers Association

The International Swaps and Derivatives Association (ISDA)

The Loan Syndications and Trading Association (LSTA)

Housing Policy Council

Student Loan Servicing Alliance

Consumer Bankers Association

Education Finance Council, Inc.

The Real Estate Roundtable