The U.S. House of Representatives House passed the Adjustable Interest Rate (LIBOR) Act – a bill that protects an estimated $16 trillion in assets when the London Interbank Offered Rate (LIBOR) is discontinued on June 30, 2023.
The enactment of this bill will help ensure the discontinuation of LIBOR does not hurt markets, investors, and consumers or cause disruptions to the financial system. The bill, introduced by Rep. Brad Sherman’s (D-CA), passed in 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 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.”
This bill provides a replacement interest rate for those loans, securities, and other financial instruments that rely on LIBOR and will not continue functioning as originally intended after it is discontinued. This legislation is designed so that it will not affect LIBOR-based contracts, which contain provisions that allow them to easily transition to an alternative interest rate.
“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,” Sherman explained.
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell said it was necessary for Congress to pass legislation to allow a smooth transition away from LIBOR in the United States.