U.S. financial regulators have provided extra detail about just what should be defined as new LIBOR-related contracts, which they are pushing to bring to an end this year.
The Federal Reserve, along with four other federal bodies and various state overseers, released guidance on Wednesday that defines as "new" an agreement that creates additional London interbank offered rate (LIBOR) exposure for an institution or extends the term of an existing contract. The definition does not, however, include the drawdown of legally enforceable committed facilities that have not been fully tapped, leaving open the possibility of using existing revolvers.
And with just over two months until the year-end deadline to ditch LIBOR for "new" transactions, regulators are also urging institutions to cut ties even sooner than that. In their latest guidance, they suggested that any obligation entered into before December 31 should either use a reference rate other than LIBOR or have fallback language that provides for use of a "strong and clearly defined alternative."
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