By Andrew Ackerman 

WASHINGTON -- U.S. regulators on Monday pressed banks to stop using the London interbank offered rate on new transactions by the end of 2021 while backing a plan to allow many existing transactions to mature before Libor fully winds down in June 2023.

The moves amount to the strongest and clearest guidance yet from regulators about the risks to banks for writing new contracts based on Libor, an interest-rate benchmark that global policy makers moved to scrap after concluding it was balky and prone to manipulation.

Entering into new contracts using Libor after 2021 would "create safety and soundness risks," U.S. regulators warned in a joint statement, pledging to "examine bank practices accordingly."

At the same time, U.S. officials said they welcomed a plan to offer an additional 18 months for so-called legacy contracts -- the roughly $200 trillion of existing interest-rate derivatives and business loans tied to the rate -- to mature before Libor fully winds down in June 2023. Previously, U.K. and U.S. policy makers have said Libor couldn't be guaranteed after 2021.

"These announcements represent critical steps in the effort to facilitate an orderly wind-down" of dollar-based Libor transactions, John Williams, president of the Federal Reserve Bank of New York, said in a statement. "They propose a clear picture of the future, to help support transition planning over the next year and beyond."

Regulators estimate that most of the legacy contracts will mature before June 2023. For the rest, legislation will be needed to switch benchmarks for contracts that lack a clear-cut fallback once Libor ceases to exist, senior Fed officials told reporters on Monday.

"Today's plan ensures that the transition away from Libor will be orderly and fair for everyone -- market participants, businesses, and consumers," Fed Vice Chair for Supervision Randal Quarles said in a statement.

The Bank Policy Institute, an industry group, said in a statement that "The decision to extend Libor for legacy contracts until 2023 is a prudent step that will help facilitate an orderly transition."

Deeply rooted in markets, Libor was exposed by a 2012 scandal that led to convictions for some traders and penalties for numerous banks.

If the transition doesn't go as planned, consumers could end up on the hook for increased payments on credit-card loans and other borrowings, while small businesses could face higher fixed rates for loans.

Write to Andrew Ackerman at


(END) Dow Jones Newswires

November 30, 2020 12:22 ET (17:22 GMT)

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