Sherman Bill to Protect U.S. Financial System from $16 Trillion LIBOR Uncertainty Included in Bill That Will Pass House Tonight

Press Release

Today, the House included Congressman Brad Sherman's (D-Sherman Oaks) Adjustable Interest Rate (LIBOR) Act -- in the Omnibus government funding package which will pass the House tonight. The bill will protect 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.

"Without this bill, as to $16 Trillion of business loans, mortgages, and other instruments, the exact amount the borrowers should pay the lender would be unknown -- and subject to thousands of lawsuits," said Congressman Sherman. "Both Federal Reserve Chair Powell and Treasury Secretary Janet Yellen have testified before our Committee that this $16 trillion problem poses a "systemic risk' to our economy, and that legislation was necessary. I want to thank Chairwoman Waters for her help in passing this bill before the LIBOR hit the fan in June 2023. We are now set to solve this $16 trillion problem before the average American knew there was a problem."

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 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. In the spring of last 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."

The Adjustable Interest Rate (LIBOR) Act (H.R. 4616) was first passed in the House on December 8, 2021, by a vote of 415 to 9. Companion legislation was also recently introduced in the Senate by U.S. Senators Jon Tester (D-Mont.), Thom Tillis (R-N.C.), and Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and Ranking Member Pat Toomey (R-Penn.).

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