On July 19, 2022, the Federal Reserve Board (FRB) issued a proposed rule that would implement the Adjustable Interest Rate (LIBOR) Act (LIBOR Act) (12 USC 5801 et seq.), enacted by Congress and signed into law by President Biden on March 15, 2022, to provide a uniform, nationwide solution for replacing references to LIBOR in existing contracts without adequate benchmark fallback provisions (see Legal Updates, Adjustable Interest Rate (LIBOR) Act of 2021 Introduced to Assist with LIBOR Transition and Legacy LIBOR Transition Measure Signed into Law by President Biden as Part of Omnibus Spending Bill).

The proposed rule would establish benchmark replacements for contracts governed by US law that reference certain tenors of US dollar LIBOR (including the overnight and one-, three-, six-, and 12-month tenors) and do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate following the first London banking day after June 30, 2023.

Consistent with the LIBOR Act, the proposed rule would replace references to LIBOR in certain contracts with the applicable FRB-selected replacement rate after June 30, 2023. The contracts covered by the proposed rule include those governed by domestic law that do not mature before LIBOR ends and that lack adequate fallback provisions. The proposed rule identifies separate FRB-selected replacement rates for derivatives transactions, contracts where a government-sponsored enterprise (GSE) is a party, and all other affected contracts. As required by the LIBOR Act, each proposed replacement rate is based on the Secured Overnight Financing Rate (SOFR).

The proposed rule would also provide additional definitions and clarifications consistent with the LIBOR Act.

Public comment on the proposed rule is due 30 days after publication in the Federal Register.