Federal Reserve Bank of New York Chairman John Williams said on Monday that a replacement for the scandal-ridden Libor benchmark interest rate regime had performed well amid tensions in the financial system during the coronavirus pandemic.
“If the pandemic has confirmed one thing about financial benchmarks, it’s the resilience of robust benchmarks,” including new ones like the Secured Overnight Financing Rate, or SOFR, Mr. Williams said in the text of a speech to be delivered by video.
The SOFR, published by the New York Fed, proposes a benchmark rate system as a replacement for Libor, which is based on the judgment of banks and has been the source of manipulation in the past. Libor is expected to be phased out on January 1, 2022, and regulators have pushed financial companies to adopt SOFR to replace it.
Mr. Williams, who is also vice-chair of the federal rate-setting committee, did not discuss the economic outlook in his prepared remarks.
The official said amid the market turmoil seen in the spring, which saw an unprecedented support effort from the Fed, “SOFR was a dog that didn’t bark or bite.” He added that his bank “publishes a number of guaranteed and unsecured overnight funding rates, and during this tumultuous time they have all moved in concert, anchored by rates set by the Federal Reserve.”
Mr Williams said progress was being made to move away from Libor. He added that it was time for companies to stop using Libor, saying “let’s not dig even deeper into the existing hole that we are trying to get out”.
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