FILE PHOTO: John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri/File Photo
(Reuters) – The global pandemic that roiled markets in the spring and disrupted daily life across the world is not delaying financial regulators’ plans to ditch Libor, an interest rate benchmark that was tainted with scandal after banks rigged it for years, New York Federal Reserve Bank President John Williams said on Monday.
The policymaker said the timeline for phasing the rate out by the end of 2021 remained the same. He urged banks to stop using Libor in new financial contracts.
“It doesn’t matter whether you’re a large global bank or a local company with a handful of employees, you need to be prepared to manage your institution’s transition away from LIBOR,” Williams said in remarks prepared for a webinar organized by the Alternative Reference Rates Committee, a group of market participants helping to implement the move to the preferred benchmark rate, the Secured Overnight Financing Rate (SOFR). “As I’ve said before, let’s not make the existing hole we’re trying to climb out of even deeper.”
The Fed official said SOFR is a more robust benchmark rate because it is based on a higher volume of transactions than Libor. The New York Fed started publishing SOFR averages and a SOFR index in March and Fannie Mae and Freddie Mac will stop accepting adjustable rate mortgages based on Libor by the end of 2020.
Williams did not comment on his outlook for the economy or monetary policy in his remarks.
Reporting by Jonnelle Marte; Editing by Chizu Nomiyama