The House on Wednesday passed a $1.5 trillion omnibus funding bill that includes a replacement framework for outstanding financial contracts tied to LIBOR.
New contracts based on the London interbank offered rate ceased at the end of 2021, but the most-utilized U.S. dollar LIBOR tenors will stop in June 2023, giving more time for outstanding contracts to mature and reducing the chance of potential disruptions.
Tucked in the wide-ranging 2,700-page spending bill that was approved in a 260-171 vote, was the Adjustable Interest Rate (LIBOR) Act of 2021,
The LIBOR bill, which the House initially passed in December in a 415-9 vote, would allow LIBOR-based financial contracts with no stipulation for a new benchmark rate to default to the Federal Reserve's recommended SOFR, or secured overnight financing rate, without resorting to amendments or litigation.
This bill will not affect LIBOR-based contracts that contain provisions that allow them to easily transition to an agreed-upon alternative interest rate.
A bipartisan group of senators introduced a similar bill on March 2. The funding bill approved in the House Wednesday now heads to the Senate where it's expected to pass in the coming days.
Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, welcomed the inclusion of the LIBOR bill in the omnibus package.
"There are currently trillions of dollars of existing contracts and instruments that, as a practical matter, cannot be amended to utilize an alternative rate and federal legislation is necessary to facilitate a smooth transition away from LIBOR to an alternative reference rate for these 'tough legacy' contracts," Mr. Bentsen said in a statement. "This legislation will benefit all market participants including LIBOR's end users, who range from investors to companies to consumers."