President of the Federal Reserve Bank of New York John C. Williams warned of "just how little time both the public sector and market participants have to prepare for a world without LIBOR."
Speaking at the fifth annual U.S. Treasury Market Conference, Mr. Williams told participants not to hope "for an extension to the deadline or a reincarnation of the rate." He emphasized "that the clock is ticking and everyone needs to get their firms ready for January 1, 2022."
He advised that "implementation will be complex: financial contracts need to be scrutinized, operations need to be evaluated, and technology needs to be updated. The work involves numerous jurisdictions and multiple asset classes, and will require changes from how business is conducted to how systems are built. These things take time, and time is running out."
Commentary
Federal Reserve Bank of New York President John Williams' warnings to prepare for the end of LIBOR may be blunt, but they are warranted. The progress of the Alternative Reference Rate Committee ("ARRC"), particularly of the ARRC's selection of the Secured Overnight Financing Rate ("SOFR") as the preferred alternative rate, as well as all the additional transition guidance produced by the ARRC, reflect an enormous amount of energy expended to ensure a smooth transition. (Full disclosure: Cadwalader has been assisting ARRC since its inception.) That said, financial institutions should heed Mr. Williams' advice to address legacy LIBOR-linked contracts now. His comments add to the chorus of regulators saying not to expect an extension.
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