U.S. Federal Reserve Issues Final Rule Under Federal LIBOR Act

The Board of Governors of the Federal Reserve System (the “Board”) has issued a final rule (the “Rule”) relating to LIBOR transition. The Rule was promulgated under the Adjustable Interest Rate (LIBOR) Act (the “Act”), which was signed into federal law earlier this year.

The Rule was approved by the Board on December 16, 2022 and will become effective 30 days after it is published in the Federal Register. However, for most purposes relating to the Rule, the most significant date is the first London banking day after June 30, 2023, which is the “LIBOR replacement date” referred to in the Act and the Rule. On that date, the “benchmark replacements” that are a principal subject of the Rule will become effective.

We describe the benchmark replacements below, along with a few other aspects of the Rule and some considerations relating to synthetic LIBOR and implementation by contracting parties.

The Act and the Rule apply only to contracts governed by U.S. law (including the law of any U.S. state) that use U.S. dollar LIBOR of overnight, one-month, three-month, six-month, and 12-month tenors; and we use “LIBOR” and “LIBOR contract” accordingly.

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