Sherman Bill to Protect U.S. Financial System from $16 Trillion LIBOR Uncertainty Passed by House

Statement

Today, the House passed with bipartisan support Congressman Brad Sherman's (D-CA) Adjustable Interest Rate (LIBOR) Act -- legislation that protects an estimated $16 trillion of loans, securities, and other financial instruments from chaos and costly litigation when the London Interbank Offered Rate ("LIBOR"), often called "the world's most important interest rate," is discontinued on June 30, 2023. The enactment of this bill will help ensure the discontinuation of LIBOR does not inflict harm on markets, investors, and consumers and avoids significant systemic disruptions to our financial system. The bill passed the House by a vote of 415 to 9.

"The passage of this bill represents an instance of Congress proactively moving to fix an impending crisis," said Congressman Sherman, Chair of the House Financial Services Subcommittee on Capital Markets and Investor Protection. "Failure to transition away from LIBOR will leave parties unable to calculate the interest due on an estimated $16 trillion of debt instruments, a systemic risk to the economy."

Federal Reserve Chair Jerome Powell described the impact of the inability to calculate the interest due on an estimated $16 trillion of debt instruments as a quote "big financial stability risk" that would put tremendous strain both on our courts and the financial system. More recently, while testifying before the House Financial Services Committee, both Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell have stated that they believe it will be necessary for Congress to pass legislation to allow for a smooth transition away from LIBOR in the U.S. Earlier this year, while testifying during a hearing held by Congressman Sherman, officials from the Department of Treasury, Federal Reserve, Securities and Exchange Commission, Office of the Comptroller of the Currency and Federal Housing Finance Agency each affirmed that it is important that Congress promptly adopt federal legislation to provide a statutory fix for LIBOR-based contracts that lack sufficient fallback language.

The Adjustable Interest Rate (LIBOR) Act provides a replacement interest rate for those loans, securities and other financial instruments which rely on LIBOR and will not be able to continue to function as originally intended after it is discontinued. This legislation has been narrowly tailored so that it will not affect LIBOR-based contracts which contain provisions that allow them to easily transition to a pre-agreed upon alternative interest rate.

Upon the passage of this bill Sherman concluded "this legislation provides a structural bridge, removing uncertainty and reducing systematic disruption in the markets. I want to thank Chairwoman Maxine Waters and my colleagues for their help in advancing this bill and for demonstrating how Congress can come together and solve a crisis before it hits."

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