[Federal Register Volume 87, Number 144 (Thursday, July 28, 2022)]
[Proposed Rules]
[Pages 45268-45281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15658]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 87, No. 144 / Thursday, July 28, 2022 / 
Proposed Rules  

[[Page 45268]]



FEDERAL RESERVE SYSTEM

12 CFR Part 253

[Regulation ZZ; Docket No. R-1775]
RIN 7100-AG34


Regulation Implementing the Adjustable Interest Rate (LIBOR) Act

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Board is inviting comment on a proposed regulation that 
would implement the Adjustable Interest Rate (LIBOR) Act. The proposed 
rule would establish benchmark replacements for contracts governed by 
U.S. law that reference certain tenors of U.S. dollar LIBOR (the 
overnight and one-, three-, six-, and 12-month tenors) and that do not 
have terms that provide for the use of a clearly defined and 
practicable replacement benchmark rate following the first London 
banking day after June 30, 2023. The proposed rule also would provide 
additional definitions and clarifications consistent with the 
Adjustable Interest Rate (LIBOR) Act.

DATES: Comments must be submitted by August 29, 2022.

ADDRESSES: You may submit comments, identified by Docket No. R-1775, 
RIN 7100-AG34, by any of the following methods:
     Agency website: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
and RIN numbers in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments are available from the Board's website at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted. Accordingly, comments will not be edited to remove any 
identifying or contact information. Public comments may also be viewed 
electronically or in paper in Room M-4365A, 2001 C Street NW, 
Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. during Federal 
business weekdays. For security reasons, the Board requires that 
visitors make an appointment to inspect comments. You may do so by 
calling (202) 452-3684. Upon arrival, visitors will be required to 
present valid government-issued photo identification and to submit to 
security screening in order to inspect and photocopy comments. For 
users of TTY-TRS, please call 711 from any telephone, anywhere in the 
United States.

FOR FURTHER INFORMATION CONTACT: David Bowman, Senior Associate 
Director, 202-452-2334, Division of Monetary Affairs; Lucy Chang, 
Special Counsel, 202-475-6331, or Cody Gaffney, Attorney, 202-452-2674, 
both of the Legal Division; or Lesley Chao, Lead Financial Institution 
Policy Analyst, 202-974-7063, Division of Supervision and Regulation. 
For users of TTY-TRS, please call 711 from any telephone, anywhere in 
the United States.

SUPPLEMENTARY INFORMATION:

I. Background

A. LIBOR

    LIBOR, formerly known as the London Interbank Offered Rate, is an 
interest rate benchmark that was the dominant reference rate used in 
financial contracts in recent decades and remains in extensive use 
today, serving as the benchmark rate in more than $200 trillion worth 
of contracts worldwide.\1\ While over-the-counter and exchange-traded 
derivatives account for the vast majority of this estimated exposure to 
LIBOR, LIBOR is also referenced in trillions of dollars' worth of 
business and consumer loans, bonds, securitizations, and nonfinancial 
corporate contracts.
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    \1\ Adjustable Interest Rate (LIBOR) Act, Public Law 117-103, 
div. U, section 102(a)(1).
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    LIBOR is intended to reflect the rate at which large banks can 
borrow wholesale funds on an unsecured basis. LIBOR is calculated based 
on submissions contributed by a panel of large, globally active banks 
(LIBOR panel banks). Until December 31, 2021, LIBOR's administrator 
calculated and published LIBOR each London business day for five 
currencies (USD, GBP, EUR, CHF, and JPY) and seven borrowing periods, 
known as tenors (overnight, one week, one month, two months, three 
months, six months, and twelve months).
    Over the past decade, financial regulators have expressed growing 
concern regarding the structural vulnerabilities and robustness of 
LIBOR.\2\ Following the financial crisis of 2007-2009, other forms of 
borrowing have largely replaced short-term unsecured wholesale 
borrowing as a source of funds for most banks, resulting in far fewer 
market transactions on which LIBOR panel banks can base their 
submissions. At the same time, weaknesses in the governance of LIBOR 
created the opportunity for LIBOR panel banks to manipulate LIBOR, and 
numerous high-profile examples of such manipulation were exposed.\3\ 
Following these scandals, in 2013, the administration of LIBOR was 
transferred to a new administrator, ICE Benchmark Administration 
Limited (IBA), which is regulated by the U.K.'s Financial Conduct 
Authority (FCA).
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    \2\ See, e.g., Financial Stability Oversight Council, 2013 
Annual Report at 137-42.
    \3\ See, e.g., U.S. Dep't of Justice, Barclays Bank PLC Admits 
Misconduct Related to Submissions for London Interbank Offered Rate 
and the Euro Interbank Offered Rate and Agrees to Pay $160 Million 
Penalty (June 27, 2012), https://www.justice.gov/opa/pr/barclays-bank-plc-admits-misconduct-related-submissions-london-interbank-offered-rate-and; U.S. Dep't of Justice, Rabobank Admits Wrongdoing 
in Libor Investigation, Agrees to Pay $325 Million Criminal Penalty 
(Oct. 29, 2013), https://www.justice.gov/opa/pr/rabobank-admits-wrongdoing-libor-investigation-agrees-pay-325-million-criminal-penalty; U.S. Dep't of Justice, Deutsche Bank's London Subsidiary 
Agrees to Plead Guilty in Connection with Long-Running Manipulation 
of LIBOR (Apr. 23, 2015), https://www.justice.gov/opa/pr/deutsche-banks-london-subsidiary-agrees-plead-guilty-connection-long-running-manipulation.
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    Despite increased regulatory oversight and efforts to improve 
LIBOR, confidence in LIBOR continued to wane, and financial regulators 
and market participants began to search for alternative reference rates 
and develop plans for a transition away from LIBOR. In the United 
States, this effort has been led by the Alternative Reference Rates

[[Page 45269]]

Committee (ARRC), a group of private-sector firms convened jointly by 
the Board and the Federal Reserve Bank of New York (FRBNY) in 2014.\4\ 
Among other work, the ARRC identified the Secured Overnight Financing 
Rate (SOFR) as its recommended replacement for USD LIBOR and developed 
a Paced Transition Plan to support the transition from USD LIBOR to 
SOFR.\5\ SOFR is a broad measure of the cost of borrowing cash 
overnight collateralized by U.S. Treasury securities.\6\ Similar groups 
were convened in other jurisdictions and identified comparable risk-
free rates as recommended replacements for the other LIBOR currencies.
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    \4\ See ARRC, About, https://www.newyorkfed.org/arrc/about (last 
visited July 7, 2022).
    \5\ ARRC, The ARRC Selects a Broad Repo Rate as its Preferred 
Alternative Reference Rate (June 22, 2017), https://www.newyorkfed.org/medialibrary/microsites/arrc/files/2017/ARRC-press-release-Jun-22-2017.pdf; ARRC, Second Report (Mar. 2018) at 
17, https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.
    \6\ SOFR is published daily by the FRBNY in cooperation with the 
U.S. Department of the Treasury's Office of Financial Research. See 
Fed. Res. Bk. of New York, Secured Overnight Financing Rate Data, 
https://www.newyorkfed.org/markets/reference-rates/sofr (last 
visited July 7, 2022). SOFR is calculated as a volume-weighted 
median of transaction-level tri-party repurchase agreement (repo) 
data collected from the Bank of New York Mellon, as well as general 
collateral financing repo transaction data and data on bilateral 
Treasury repo transactions cleared through the Fixed Income Clearing 
Corporation's delivery-versus-payment service, which are obtained 
from the U.S. Department of the Treasury's Office of Financial 
Research. Id.
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    In July 2017, following the departure of some panel banks, the FCA 
announced that the remaining LIBOR panel banks had voluntarily agreed 
to sustain LIBOR through the end of 2021 to facilitate an orderly 
transition away from LIBOR.\7\ On March 5, 2021, the FCA announced 
that, after December 31, 2021, IBA would cease publishing 24 currency 
and tenor pairs (known as settings). The discontinued LIBOR settings 
included one-week and two-month USD LIBOR, as well as all EUR and CHF 
LIBOR tenors and most GBP and JPY LIBOR tenors.\8\ However, the FCA 
required IBA to continue publishing, on a temporary basis, certain GBP 
and JPY LIBOR tenors on a ``synthetic'' basis, stating that any such 
synthetic LIBOR settings ``will no longer be representative of the 
underlying market and economic reality the setting is intended to 
measure.'' \9\
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    \7\ See Andrew Bailey, Chief Executive, FCA, The Future of LIBOR 
(July 27, 2017), https://www.fca.org.uk/news/speeches/the-future-of-libor.
    \8\ See FCA, FCA Announcement on Future Cessation and Loss of 
Representativeness of the LIBOR Benchmarks (Mar. 5, 2021), https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf.
    \9\ Id.
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    To allow most legacy USD LIBOR contracts to mature without 
disruption, the FCA also announced that the panels for the remaining 
five tenors of USD LIBOR would continue through, but cease after, June 
30, 2023. The FCA has signaled that it could consider whether to 
require IBA to continue publishing one-, three-, or six-month USD LIBOR 
on a synthetic basis for some period after June 30, 2023 (synthetic 
LIBOR).\10\ As with synthetic GBP or JPY LIBOR settings, the FCA has 
announced that synthetic LIBOR, if published, would ``no longer be 
representative of the underlying market and economic reality the 
setting is intended to measure.'' \11\
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    \10\ See FCA, Further Arrangements for the Orderly Wind-down of 
LIBOR at End-2021 (Sept. 29, 2021), https://www.fca.org.uk/news/press-releases/further-arrangements-orderly-wind-down-libor-end-2021 
(``The decisions to require publication of some sterling and 
Japanese yen LIBOR settings on a synthetic basis are not 
determinative of any future decisions in respect of US dollar LIBOR 
from end-June 2023.'').
    \11\ See FCA, FCA Announcement on Future Cessation and Loss of 
Representativeness of the LIBOR Benchmarks (Mar. 5, 2021), https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf.
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    In response to the planned cessation of USD LIBOR, U.S. financial 
regulators have encouraged market participants to transition away from 
USD LIBOR as a reference rate as soon as practicable. For example, in 
November 2020, the Office of the Comptroller of the Currency (OCC), the 
Board, and the Federal Deposit Insurance Corporation (FDIC) issued an 
interagency statement stating that banking organizations generally 
should not enter into new contracts referencing USD LIBOR after 
December 31, 2021.\12\ The ARRC and other private industry groups also 
have worked to encourage an orderly transition away from USD LIBOR. For 
example, as discussed further below, the International Swaps and 
Derivatives Association (ISDA) has developed a contractual protocol by 
which parties to derivative transactions governed by ISDA documentation 
and other financial contracts can agree to incorporate more robust 
contractual fallback provisions that replace references to LIBOR with 
an alternative benchmark based on SOFR in the event that a given LIBOR 
rate ceases publication or is found by the FCA to no longer be 
representative.\13\ The ARRC has developed guiding principles for 
similar fallback language for cash products such as business loans, 
securitizations, floating rating notes, and consumer products, 
including specific recommended language for certain cash products.\14\ 
ISDA's IBOR protocol and the ARRC fallback language recommendations 
were both subject to numerous public consultations, and they have 
received widespread adoption subsequent to their release.\15\
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    \12\ See Board, FDIC, OCC, Statement on LIBOR Transition (Nov. 
30, 2020), https://www.federalreserve.gov/supervisionreg/srletters/SR2027a1.pdf.
    \13\ ISDA, ISDA 2020 IBOR Fallbacks Protocol, https://www.isda.org/protocol/isda-2020-ibor-fallbacks-protocol/.
    \14\ See, e.g., ARRC, ARRC Guiding Principles for More Robust 
LIBOR Fallback Contract Language in Cash Products (July 9, 2018), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-principles-July2018; ARRC, Summary of ARRC's LIBOR Fallback 
Language (Nov. 15, 2019), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/LIBOR_Fallback_Language_Summary; ARRC, 
ARRC Recommendations Regarding More Robust Fallback Language for New 
Issuance of LIBOR Securitizations (May 31, 2019), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/Securitization_Fallback_Language.pdf; ARRC, ARRC Recommendations 
Regarding More Robust LIBOR Fallback Contract Language for New 
Closed-End, Residential Adjustable Rate Mortgages (Nov. 15, 2019), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARM_Fallback_Language.pdf.
    \15\ See, e.g., ISDA, ISDA 2020 IBOR Fallbacks Protocol List of 
Adhering Parties (May 27, 2022), https://www.isda.org/protocol/isda-2020-ibor-fallbacks-protocol/adhering-parties. The U.S. Department 
of Justice (DOJ) also reviewed ISDA's IBOR protocol, concluded that 
it is unlikely to harm competition, and stated that the DOJ would 
not challenge ISDA's IBOR protocol under federal antitrust laws. See 
DOJ, Justice Department Issues Favorable Business Review Letter to 
ISDA for Proposed Amendments to Address Interest Rate Benchmarks 
(Oct. 1, 2020), https://www.justice.gov/opa/pr/justice-department-issues-favorable-business-review-letter-isda-proposed-amendments-address.
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B. Legacy Contracts and the Adjustable Interest Rate (LIBOR) Act

    Notwithstanding governmental and private-sector efforts to 
encourage market participants to prepare for the cessation of USD 
LIBOR, there are a significant number of existing contracts that 
reference USD LIBOR, will not mature by June 30, 2023, and cannot be 
easily amended. Of particular concern are so-called ``tough legacy 
contracts,'' which are contracts that reference USD LIBOR and will not 
mature by June 30, 2023, but which lack adequate fallback provisions 
providing for a clearly defined or practicable replacement benchmark 
following the cessation of USD LIBOR. To address these tough legacy 
contracts, multiple states adopted legislation, initially proposed by 
the ARRC, to provide a statutory remedy for financial contracts 
governed by the laws of the enacting states that reference USD LIBOR, 
will not mature until after USD LIBOR ceases or becomes 
nonrepresentative, and have no effective

[[Page 45270]]

means to replace USD LIBOR after it ceases or becomes 
nonrepresentative.\16\ While these state laws provided a solution for a 
large number of tough legacy contracts, further legislative action was 
needed to address tough legacy contracts governed by the laws of other 
states.
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    \16\ See, e.g., N.Y. Gen. Oblig. Law art. 18-C; Ala. Code tit. 
5, ch. 28; 2022 Fla. Laws ch. 57 (to be codified at Fla. Stat. 
687.15); S. Bill No. 2133, 112th Gen. Assemb., Reg. Sess. (Tenn. 
2022) (to be codified at Tenn. Code Ann. 47-33-101 et seq.); S. 371, 
122nd Gen. Assemb., Reg. Sess. (Ind. 2022) (to be codified at Ind. 
Code 38-10-2); Leg. Bill 707, 107th Leg., 2nd Sess. (Neb. 2022).
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    Recognizing the need for a uniform, nationwide solution for 
replacing references to USD LIBOR in tough legacy contracts, on March 
15, 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act 
(the ``Act'') as part of the Consolidated Appropriations Act, 2022.\17\ 
Among other things, the Act lays out a set of default rules that apply 
to tough legacy contracts subject to U.S. law.
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    \17\ Public Law 117-103, div. U.
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    Section 104 is the main operative provision of the Act. Section 104 
generally distinguishes between three categories of LIBOR contracts 
with different types of fallback provisions. For these purposes, the 
Act defines ``LIBOR contract'' broadly to include any obligation or 
asset that, by its terms, uses the overnight, one-month, three-month, 
six-month, or 12-month tenors of USD LIBOR as a benchmark.\18\ 
Consistent with this definition, the proposed rule and the remainder of 
the discussion will focus on these stated tenors of USD LIBOR only. The 
Act defines ``fallback provisions'' to mean the terms in a LIBOR 
contract for determining a benchmark replacement, including any terms 
relating to the date on which the benchmark replacement becomes 
effective.\19\
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    \18\ See Act section 103(16) (definition of ``LIBOR contract''); 
Act section 103(15) (definition of ``LIBOR''). The Act does not 
apply to contracts that use the one-week or two-month tenors of USD 
LIBOR as a benchmark. Id. The Act defines ``benchmark'' to mean an 
index of interest rates or dividend rates that is used, in whole or 
in part, as the basis of or as a reference for calculating or 
determining any valuation, payment, or other measurement. Act 
section 103(1).
    \19\ Act section 103(11). The Act defines ``benchmark 
replacement'' to mean a benchmark, or an interest rate or dividend 
rate (which may or may not be based in whole or in part on a prior 
setting of LIBOR), to replace LIBOR or any interest rate or dividend 
rate based on LIBOR, whether on a temporary, permanent, or 
indefinite basis, under or with respect to a LIBOR contract. Act 
section 103(3).
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    The first category of LIBOR contracts encompasses contracts that 
contain fallback provisions identifying a specific benchmark 
replacement that is not based in any way on any of the Act's USD LIBOR 
values (except to account for the difference between LIBOR and the 
benchmark replacement) and that do not require any person (other than a 
benchmark administrator) \20\ to conduct a poll, survey, or inquiries 
for quotes or information concerning interbank lending or deposit 
rates. These LIBOR contracts generally can be expected to transition to 
the contractually agreed-upon benchmark replacement as provided by 
their fallback provisions on or before the LIBOR replacement date--the 
first London banking day after June 30, 2023 (unless the Board 
determines that any LIBOR tenor will cease to be published or cease to 
be representative on a different date).\21\
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    \20\ See Act section 104(b). The Act defines ``benchmark 
administrator'' to mean a person that publishes a benchmark for use 
by third parties. Act Sec.  103(2).
    \21\ Act sections 104(f)(2), 103(17) (definition of ``LIBOR 
replacement date''). At this time, the Board does not expect to 
determine a LIBOR replacement date earlier than the first London 
banking day after June 30, 2023. As discussed in more detail below, 
the potential publication of synthetic LIBOR on and after the LIBOR 
replacement date may create ambiguity regarding the application of 
the LIBOR Act to a subset of these LIBOR contracts. The Board 
invites comment on whether to clarify this issue in the final rule.
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    The second category of LIBOR contracts encompasses contracts that 
contain no fallback provisions, as well as LIBOR contracts with 
fallback provisions that do not identify a determining person (as 
described below) and that only (i) identify a benchmark replacement 
that is based in any way on any of the Act's USD LIBOR values (except 
to account for the difference between LIBOR and the benchmark 
replacement) or (ii) require that a person (other than a benchmark 
administrator) conduct a poll, survey, or inquiries for quotes or 
information concerning interbank lending or deposit rates.\22\ For this 
second category of LIBOR contracts, the Act provides that the benchmark 
replacement on the LIBOR replacement date will be the Board-selected 
benchmark replacement--that is, a benchmark replacement identified by 
the Board that is based on SOFR, including any tenor spread adjustments 
required under the Act.\23\ Thus, any references to USD LIBOR in LIBOR 
contracts in this second category will, by operation of law, be 
replaced by the Board-selected benchmark replacement on the LIBOR 
replacement date.
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    \22\ The Act deems these types of fallback provisions to be null 
and void by operation of law. Act section 104(b). To the extent a 
contract contains fallback provisions that specify these types of 
replacements would be applied ahead of another, separate benchmark 
replacement, then under the Act, these fallback provisions would be 
disregarded and the separate benchmark replacement would apply.
    \23\ Act section 104(a)-(b); see also Act section 103(6) 
(definition of ``Board-selected benchmark replacement'').
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    For contracts that fall into this second category, the Act provides 
a series of statutory protections, enumerated in section 105 of the 
Act, for persons who use the Board-selected benchmark replacement, 
including that no person shall be subject to any claim or cause of 
action in law or equity or request for equitable relief, or have 
liability for damages, arising out of the use of the Board-selected 
benchmark replacement as a benchmark replacement.\24\
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    \24\ Act section 105(a)-(b), (c)(1), (d).
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    The third category of LIBOR contracts encompasses LIBOR contracts 
that contain fallback provisions authorizing a determining person to 
determine a benchmark replacement.\25\ The application of the Act to 
LIBOR contracts in this third category depends on the determination, if 
any, made by the determining person. Where a determining person does 
not select a benchmark replacement by the LIBOR replacement date or the 
latest date for selecting a benchmark replacement according to the 
terms of the LIBOR contract (whichever is earlier), the Act provides 
that the benchmark replacement for such LIBOR contract will be, by 
operation of law, the Board-selected benchmark replacement on and after 
the LIBOR replacement date.\26\ Where a determining person selects the 
Board-selected benchmark replacement as the benchmark replacement, the 
Act provides that such selection shall be (i) irrevocable, (ii) made by 
the earlier of the LIBOR replacement date and the latest date for 
selecting a benchmark replacement according to the terms of the LIBOR 
contract, and (iii) used in any determinations of the benchmark under 
or with respect to the LIBOR contract occurring on and after the LIBOR 
replacement date.\27\
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    \25\ The Act defines ``determining person'' to mean, with 
respect to any LIBOR contract, any person with the authority, right, 
or obligation, including on a temporary basis (as identified by the 
LIBOR contract or by the governing law of the LIBOR contract, as 
appropriate) to determine a benchmark replacement. Act section 
103(10).
    \26\ Act section 104(c)(3).
    \27\ Act section 104(c)(2).
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    Although the Act does not require a determining person to select 
the Board-selected benchmark replacement as the benchmark replacement 
for a LIBOR contract, the Act provides a series of statutory 
protections, enumerated in section 105 of the Act, for any determining 
person who does so, including that a determining person generally shall 
not be subject to any claim or cause of action in law or equity or 
request for equitable relief, or have

[[Page 45271]]

liability for damages, arising out of the selection of the Board-
selected benchmark replacement as a benchmark replacement.\28\
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    \28\ Act section 105(c)(1); see also Act section 105(a)-(b), 
(d). This statutory safe harbor also applies to the use of the 
Board-selected benchmark replacement other than at the selection of 
a determining person.
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    Where the Board-selected benchmark replacement becomes the 
benchmark replacement for a LIBOR contract (either by operation of law 
or via the selection of a determining person), the Act contemplates 
that certain conforming changes to a LIBOR contract may be necessary to 
facilitate the transition from USD LIBOR to the Board-selected 
benchmark replacement. These ``benchmark replacement conforming 
changes'' may arise in one of two ways. First, the Act authorizes the 
Board to determine benchmark replacement conforming changes that, in 
its discretion, would address one or more issues affecting the 
implementation, administration, and calculation of the Board-selected 
benchmark replacement in LIBOR contracts.\29\ Second, for a LIBOR 
contract that is not a consumer loan, a calculating person may, in its 
reasonable judgment, determine that benchmark replacement conforming 
changes are otherwise necessary or appropriate to permit the 
implementation, administration, and calculation of the Board-selected 
benchmark replacement under or with respect to a LIBOR contract after 
giving due consideration to any benchmark replacement conforming 
changes determined by the Board.\30\ For this purpose, the Act defines 
``calculating person'' to mean, with respect to any LIBOR contract, any 
person, including the determining person, responsible for calculating 
or determining any valuation, payment, or other measurement based on a 
benchmark.\31\
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    \29\ Act section 103(4)(A).
    \30\ Act section 103(4)(B). The Act defines ``consumer loan'' to 
mean a consumer credit transaction, which is defined by cross-
reference to the Truth in Lending Act. Act section 103(9) 
(definition of ``consumer loan); section 103(8) (definitions of 
``consumer'' and ``credit'').
    \31\ Act section 103(7).
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    Section 104 of the Act provides that all benchmark replacement 
conforming changes (whether determined by the Board or, if applicable, 
a calculating person) shall become an integral part of the LIBOR 
contract, and a calculating person shall not be required to obtain 
consent from any other person prior to the adoption of benchmark 
replacement conforming changes.\32\ In addition, the determination, 
implementation, and performance of benchmark replacement conforming 
changes are generally subject to the statutory protections enumerated 
in section 105 of the Act, which are designed to ensure continuity of 
contract.\33\ Finally, where a calculating person implements or (in the 
case of a LIBOR contract that is not a consumer loan) determines 
benchmark replacement conforming changes, the Act provides that the 
calculating person shall not be subject to any claim or cause of action 
in law or equity or request for equitable relief, or have liability for 
damages.\34\
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    \32\ Act section 104(d).
    \33\ See Act section 105(a)-(b), (d).
    \34\ Act section 105(c)(1).
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    The Act includes various other provisions beyond the main operative 
provisions in section 104 and the statutory protections enumerated in 
section 105.\35\ Section 106 of the Act generally provides that a bank 
may use any benchmark (including a benchmark that is not SOFR) in any 
non-IBOR loan made before, on, or after the date of enactment of the 
Act that the bank determines to be appropriate, and that no Federal 
supervisory agency may take enforcement or supervisory action against 
the bank solely because that benchmark is not SOFR.\36\ Sections 108 
and 109 of the Act amend the Trust Indenture Act of 1939 (15 U.S.C. 
77ppp(b)) and the Higher Education Act of 1965 (20 U.S.C. 1087-
1(b)(2)(I)), respectively, to facilitate the transition from USD 
LIBOR.\37\ Finally, section 107 of the Act expressly preempts any 
provision of State or local law relating to the selection or use of a 
benchmark replacement or related conforming changes, or expressly 
limiting the manner of calculating interest (including the compounding 
of interest) as that provision applies to the selection or use of a 
Board-selected benchmark replacement or benchmark replacement 
conforming changes.\38\
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    \35\ The Board views these provisions, along with the statutory 
protections enumerated in section 105 of the Act, as self-executing.
    \36\ Act section 106.
    \37\ Act sections 108-09.
    \38\ Act section 107.
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    Section 110 of the Act directs the Board to promulgate regulations 
to carry out the Act not later than 180 days after enactment. Pursuant 
to this authority, the Board is proposing a new regulation to implement 
the Act.

II. Section-by-Section Analysis

A. Section 253.1 Authority, Purpose, and Scope

    Proposed Sec.  253.1 sets forth the authority for, purpose of, and 
scope of the proposed rule. Significantly, and consistent with the 
statute as described above, the proposal does not apply to (i) 
contracts that do not reference the overnight or one-, three-, six-, or 
12-month tenors of LIBOR or (ii) LIBOR contracts that have terms 
providing for the use of a clearly defined and practicable replacement 
benchmark for LIBOR (including LIBOR contracts where the determining 
person selects a benchmark replacement other than the Board-selected 
benchmark replacement), except as provided for in proposed Sec.  
253.3(b), which is discussed further below.\39\ The proposed rule also 
applies only to existing contracts governed by federal law or the law 
of any state. In addition, proposed Sec.  253.1 states that the parties 
to a LIBOR contract may by written agreement specify that a LIBOR 
contract shall not be subject to the proposed rule.\40\
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    \39\ Act section 104(f)(2)-(3).
    \40\ See Act section 104(f)(1).
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B. Section 253.2 Definitions

    Proposed Sec.  253.2 provides definitions for many of the terms 
used in the proposed rule. Most of the defined terms in proposed Sec.  
253.2 are substantially the same as the defined terms in the LIBOR Act. 
In addition, however, proposed Sec.  253.2 includes definitions for the 
terms ``CME Term SOFR,'' ``covered contract,'' ``covered GSE 
contract,'' ``derivative transaction,'' ``ISDA protocol,'' and ``non-
covered contract,'' each of which is discussed below in connection with 
their use in proposed Sec.  253.3 or Sec.  253.4, as applicable.
    Additionally, proposed Sec.  253.2 defines ``business day'' to mean 
any day except for (i) a Saturday, (ii) a Sunday, (iii) a day on which 
the Securities Industry and Financial Markets Association recommends 
that the fixed income departments of its members be closed for the 
entire day for purposes of trading in United States government 
securities, or (iv) a day on which the FRBNY, with advance notice, 
chooses not to publish its Treasury repo reference rates if 
participants in the Treasury repo market broadly expect to treat that 
day as a holiday. This definition of ``business day'' is relevant for 
purposes of proposed Sec.  253.4, discussed below, and is consistent 
with the FRBNY's publication dates for SOFR.\41\
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    \41\ Fed. Res. Bk. of New York, Additional Information about 
Reference Rates Administered by the New York Fed, https://www.newyorkfed.org/markets/reference-rates/additional-information-about-reference-rates#treasury_repo_details_on_publication_and_revisions (last 
visited July 7, 2022) (where section entitled ``Details on 
Publication and Revisions for the Treasury Repo Reference Rates'' 
details publication days).

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[[Page 45272]]

    Finally, proposed Sec.  253.2 defines ``state'' to mean any state, 
commonwealth, territory, or possession of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
of the Northern Mariana Islands, American Samoa, Guam, or the United 
States Virgin Islands. This definition of ``state'' is relevant for 
purposes of the scope of the proposed rule, and the preemption 
provisions in proposed Sec.  253.6. As stated in proposed Sec.  
253.1(c), the LIBOR Act and the proposed regulation apply to certain 
LIBOR contracts governed by federal law or the law of any state. 
Because Congress intended the LIBOR Act to apply on a nationwide 
basis,\42\ the Board believes it is appropriate to define ``state'' 
expansively to include U.S. territories and possessions and the 
District of Columbia.
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    \42\ See Act section 102(b)(1).
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C. Section 253.3 Applicability

    Proposed Sec.  253.3 addresses the applicability of the regulation 
to LIBOR contracts. Specifically, for LIBOR contracts that do not 
provide for the use of a clearly defined or practicable replacement 
benchmark rate (referred to as ``covered contracts'' in the proposed 
rule), the applicable Board-selected benchmark replacement indicated in 
Sec.  253.4 of the proposed rule shall be the benchmark replacement for 
the contract on and after the LIBOR replacement date.\43\ Proposed 
Sec.  253.3 also clarifies that, consistent with Sec.  253.1 of the 
proposed rule, in general, the regulation does not affect LIBOR 
contracts that are not covered contracts, with one exception discussed 
further below.\44\
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    \43\ Section 253.3(a)(1) of the proposed rule.
    \44\ Section 253.3(b) of the proposed rule; see also Act section 
104(f)(1)-(3).
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    Covered contracts. The proposed rule defines ``covered contract'' 
to mean a LIBOR contract that has one of the following characteristics 
as of the LIBOR replacement date: (i) the LIBOR contract contains no 
fallback provisions; (ii) the LIBOR contract has fallback provisions 
that identify neither a specific benchmark replacement nor a 
determining person; or (iii) the LIBOR contract contains fallback 
provisions that identify a determining person, but the determining 
person has failed to select a benchmark replacement by the earlier of 
the LIBOR replacement date and the latest date for selecting a 
benchmark replacement according to the terms of the LIBOR contract.\45\ 
In evaluating whether a LIBOR contract has any of these characteristics 
on the LIBOR replacement date, the proposed regulation would mirror the 
statute and disregard any reference in any fallback provisions of the 
LIBOR contract to the following: (i) a benchmark replacement that is 
based in any way on any LIBOR value, except to account for the 
difference between LIBOR and the benchmark replacement; or (ii) a 
requirement that a person (other than a benchmark administrator) 
conduct a poll, survey, or inquiries for quotes or information 
concerning interbank lending or deposit rates.\46\ The proposed rule 
further clarifies that a ``covered contract'' would not include any 
LIBOR contract that the parties have agreed in writing shall not be 
subject to the LIBOR Act.\47\
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    \45\ Section 253.3(a)(2)(i) of the proposed rule.
    \46\ Section 253.3(a)(2)(ii) of the proposed rule. Under the 
statute, any such references in any fallback provisions of the LIBOR 
contract would be disregarded as if not included in the fallback 
provisions of the contract and would be deemed null and void and 
without any force or effect. Act section 104(b).
    \47\ Section 253.3(a)(2)(iii) of the proposed rule; see also Act 
section 104(f)(1).
---------------------------------------------------------------------------

    Under the proposed rule, ``covered contract'' would include, for 
example, a LIBOR contract that does not specify any benchmark 
replacement or identify a determining person who could select such a 
benchmark replacement. Pursuant to proposed Sec.  253.3(a)(2)(i)(B), on 
the LIBOR replacement date, the LIBOR contract would be a covered 
contract.
    Another example would be a LIBOR contract that specifies the last 
published LIBOR value as the benchmark replacement. Pursuant to 
proposed Sec.  253.3(a)(2)(ii)(A), this benchmark replacement would be 
disregarded as of the LIBOR replacement date. As a result, on the LIBOR 
replacement date, the LIBOR contract would be a covered contract 
because it has no fallback provisions, as described in proposed Sec.  
253.3(a)(2)(i)(A).
    Non-covered contracts. As defined in the proposed rule, a LIBOR 
contract would not be a covered contract if, after giving effect to 
proposed Sec.  253.3(a)(2)(ii)(B) on the LIBOR replacement date, (i) 
the LIBOR contract has fallback provisions that identify a specific 
benchmark replacement, (ii) the LIBOR contract identifies a determining 
person that has selected a benchmark replacement, or (iii) the parties 
to the contract have agreed in writing that the contract shall not be 
subject to the LIBOR Act.\48\ Consistent with the statute, the proposed 
regulation generally would not affect LIBOR contracts that are not 
covered contracts.\49\
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    \48\ Section 253.3(b)(1) of the proposed rule; see also Act 
section 104(a). Pursuant to the statute, any references in the 
fallback provisions of a LIBOR contract to any of the following 
would be disregarded and deemed null and void and without any force 
or effect: (i) a benchmark replacement that is based in any way on 
any LIBOR value, except to account for the difference between LIBOR 
and the benchmark replacement; or (ii) a requirement that a person 
(other than a benchmark administrator) conduct a poll, survey, or 
inquiries for quotes or information concerning interbank lending or 
deposit rates. Act section 104(b); see also Sec.  253.3(a)(2)(ii) of 
the proposed rule.
    \49\ Section 253.3(b)(1) of the proposed rule; see also Act 
sections 102(b)(3) and 104(f).
---------------------------------------------------------------------------

    However, the Board's proposed rule would clarify that a determining 
person may select the Board-selected benchmark replacement specified in 
Sec.  253.4 of the proposed rule as the benchmark replacement for a 
LIBOR contract.\50\ Consistent with the LIBOR Act, the proposed rule 
would indicate that any such selection by a determining person shall be 
(i) irrevocable; (ii) made by the earlier of the LIBOR replacement date 
and the latest date for selecting a benchmark replacement according to 
the terms of the LIBOR contract; and (iii) used in any determinations 
of the benchmark under or with respect to the LIBOR contract occurring 
on and after the LIBOR replacement date.
---------------------------------------------------------------------------

    \50\ Section 253.3(b)(2) of the proposed rule.
---------------------------------------------------------------------------

    Separately, the Board is aware of a potential ambiguity regarding 
the application of the LIBOR Act to a subset of non-covered contracts. 
Specifically, the Board is aware that some LIBOR contracts contain 
fallback provisions that (i) either identify a clear and practicable 
benchmark replacement or authorize a determining person to select a 
benchmark replacement, but (ii) are triggered only when LIBOR is 
unavailable. Significantly, the fallback provisions in these LIBOR 
contracts are not triggered expressly when LIBOR is available but 
nonrepresentative.
    As mentioned previously, the Board understands it is possible that, 
on and after the LIBOR replacement date, IBA (or any successor 
administrator) may continue to publish a synthetic version of LIBOR 
that, although called ``LIBOR,'' has been expressly pronounced by the 
FCA as not representative of the underlying market and economic reality 
LIBOR had been intended to measure--namely, the rate at which banks may 
lend to, or borrow from, other banks or agents in the money 
markets.\51\ If this occurs, the continued publication of synthetic 
LIBOR on and after the LIBOR replacement date arguably could give

[[Page 45273]]

the impression that ``LIBOR'' remains available and, therefore, should 
continue to be used for LIBOR contracts with fallback provisions that 
lack an express nonrepresentativeness trigger, notwithstanding the fact 
that the LIBOR contract's fallback provisions may identify a clear and 
practicable benchmark replacement. In this scenario, because the LIBOR 
contract contains such fallback provisions, it would not be a covered 
contract for purposes of the proposed rule.\52\ Yet, to the extent 
synthetic LIBOR continues to be published on or after the LIBOR 
replacement date, there may be confusion as to whether references to 
LIBOR in the contract should be replaced pursuant to that fallback 
provision, or whether synthetic LIBOR should apply.
---------------------------------------------------------------------------

    \51\ FCA, FCA Announcement on Future Cessation and Loss of 
Representative of the LIBOR Benchmarks par.7 (Mar. 5, 2021), https://www.fca.org.uk/publication/documents/future-cessation-loss-representativeness-libor-benchmarks.pdf; FCA, UK Benchmarks 
Regulation, https://www.fca.org.uk/markets/benchmarks/regulation 
(last visited July 7, 2022) (describing regulation).
    \52\ Section 253.3(b) of the proposed rule; see also Act 
104(f)(2).
---------------------------------------------------------------------------

    In light of this potential ambiguity, the Board is considering 
whether, for clarity, the final rule should provide that, with respect 
to any LIBOR contract that is not a covered contract (other than a 
LIBOR contract where the parties have agreed in writing that the 
contract shall not be subject to the LIBOR Act), LIBOR shall be 
replaced with the benchmark replacement specified pursuant to the LIBOR 
contract on the earlier of (i) the date specified pursuant to the LIBOR 
contract or (ii) the LIBOR replacement date. Under such a rule, the 
benchmark replacement specified pursuant to a non-covered contract 
would become operative on or before the LIBOR replacement date 
(depending on the contract's terms), even in the event a 
nonrepresentative rate called ``LIBOR'' in the form of synthetic LIBOR 
continues to be published on and after the LIBOR replacement date. The 
Board believes that, for the reasons described below, such a 
clarification may promote the purposes of the LIBOR Act.
    First, the findings and purpose of the LIBOR Act indicates that 
Congress sought to ``establish a clear and uniform process . . . for 
replacing LIBOR in existing contracts the terms of which do not provide 
for the use of a clearly defined or practicable replacement benchmark 
rate'' based on a finding that ``the cessation or nonrepresentativeness 
of LIBOR could result in disruptive litigation related to existing 
contracts that do not provide for the use of a clearly defined or 
practicable replacement benchmark rate.'' \53\ In addition, Congress 
sought to ``allow existing contracts that reference LIBOR but provide 
for the use of a clearly defined and practicable replacement rate, to 
operate according to their terms.'' \54\ Considering these findings, 
the Board believes that Congress intended that, in the event LIBOR 
ceases to be published or becomes nonrepresentative on the LIBOR 
replacement date, a LIBOR contract with a clear and practicable 
benchmark replacement would replace references to LIBOR in the contract 
with the specified benchmark replacement, even if synthetic LIBOR 
continues to be published on and after the LIBOR replacement date.
---------------------------------------------------------------------------

    \53\ Act section 102(a)(3)-(b)(1).
    \54\ Act section 102(b)(3).
---------------------------------------------------------------------------

    Second, in light of the fact that a non-covered contract would 
provide for use of a clear and practicable benchmark replacement, the 
Board believes a sensible and reasonable expectation of the parties at 
the time of the agreement would have been that, upon the 
nonrepresentativeness of LIBOR, this fallback provision would operate 
to replace LIBOR, rather than binding the parties to a synthetic LIBOR 
rate that may not have been anticipated to exist at the time of the 
agreement. As discussed, although synthetic LIBOR would be called 
``LIBOR,'' it would be a fundamentally different rate that would not be 
representative of the underlying market and economic reality concerning 
the setting of rates at which banks may lend to, or borrow from, other 
banks or agents in the money markets.\55\
---------------------------------------------------------------------------

    \55\ Specifically, the Board understands that synthetic LIBOR 
also would be a SOFR-based rate and, therefore, would not be 
representative of the rates at which banks may lend to, or borrow 
from, other banks or agents in the money markets.
---------------------------------------------------------------------------

    For these reasons, the Board seeks feedback on whether the final 
rule should provide generally that the benchmark replacement specified 
pursuant to a non-covered contract would replace references to LIBOR in 
that contract on the earlier of the date specified pursuant to the 
LIBOR contract or the LIBOR replacement date. If adopted, the provision 
would not, however, apply to a LIBOR contract that is a non-covered 
contract because the parties have agreed in writing that the contract 
shall not be subject to the LIBOR Act.\56\ The Board believes such a 
provision could provide a useful clarification and also may promote the 
LIBOR Act's intention to preclude disruptive ligation related to 
existing contracts' references to LIBOR.\57\ Alternatively, the Board 
could offer no particular interpretation or clarification concerning 
non-covered contracts that do not contain an express 
nonrepresentativeness or similar triggering provision should synthetic 
LIBOR be published on and after the LIBOR replacement date. This 
position may be reasonable since the particular situation is not 
expressly addressed by the LIBOR Act and non-covered contracts include 
a provision for a clear and practicable replacement rate that otherwise 
are generally are presumed to be unaffected by the Act. Therefore, it 
may be prudent for the final rule, like the proposed rule, to leave 
these contracts unaffected.
---------------------------------------------------------------------------

    \56\ In agreeing in writing that the contract shall not be 
subject to the Act, the Board anticipates that those parties have 
agreed upon a method in which to address LIBOR references in that 
contract.
    \57\ See Act section 102(b)(2); see also Act section 102(a)(3).
---------------------------------------------------------------------------

D. Section 253.4 Board-Selected Benchmark Replacements

    Proposed Sec.  253.4 identifies the Board-selected benchmark 
replacements for various types of covered contracts. The Board agrees 
with the ARRC's observation that different benchmark replacements may 
be appropriate for derivative transactions and other transactions 
(hereafter, ``cash transactions'').\58\ Therefore, under the proposed 
rule, the Board would select different benchmark replacements for 
derivative transactions and for cash transactions. The Board also would 
select a separate benchmark replacement for certain contracts to which 
government-sponsored enterprises are a party (covered GSE contracts). 
Consistent with the LIBOR Act, all of the proposed replacements (i) 
would be based upon SOFR and (ii) would incorporate spread adjustments 
for each specified tenor of LIBOR.\59\
---------------------------------------------------------------------------

    \58\ ARRC, ARRC Best Practice Recommendations Related to Scope 
of Use of the Term Rate (May 4, 2022), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Scope_of_Use.pdf.
    \59\ See Sec.  253.4 of the proposed rule. See also Act sections 
103 and 104.
---------------------------------------------------------------------------

    The spread adjustments specified in the Act are intended to address 
certain differences between SOFR and LIBOR, including the fact that 
LIBOR is unsecured and therefore includes an element of bank credit 
risk which may cause it to be higher than SOFR.\60\ LIBOR also may 
include term premia and reflect supply and demand conditions in 
wholesale unsecured funding markets, each of which may cause LIBOR to 
be higher than SOFR.\61\ The LIBOR Act prescribes static spread 
adjustments based on the tenor of LIBOR referenced in the contract 
(tenor spread adjustments)--specifically, 0.644

[[Page 45274]]

basis points (bps) (0.00644 percent) for overnight LIBOR, 11.448 bps 
(0.11448 percent) for one-month LIBOR, 26.161 bps (0.26161 percent) for 
three-month LIBOR, 42.826 bps (0.42826 percent) for six-month LIBOR, 
and 71.513 bps (0.71513 percent) for 12-month LIBOR.\62\
---------------------------------------------------------------------------

    \60\ ARRC, ARRC Consultation on Spread Adjustment Methodologies 
for Fallbacks in Cash Products Referencing USD LIBOR 7 (Jan. 21, 
2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Spread_Adjustment_Consultation.pdf.
    \61\ Id.
    \62\ See Act section 103(20) (defining ``tenor spread 
adjustment''). These spread adjustments were based on a methodology 
originally advanced by ISDA that uses the historical median over a 
five-year lookback period calculating the difference between USD 
LIBOR and SOFR. ARRC, ARRC Announces Further Details Regarding Its 
Recommendation of Spread Adjustments for Cash Products (June 30, 
2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Recommendation_Spread_Adjustments_Cash_Products_Press_Release.pdf.
---------------------------------------------------------------------------

1. Derivative Transactions
    With respect to derivative transactions, the Board observes that 
many derivative market participants have adhered to the ISDA 2020 IBOR 
Fallbacks Protocol (ISDA protocol) to amend their existing derivative 
transaction contracts to incorporate fallback provisions that would 
replace references to USD LIBOR with a SOFR-based rate.\63\ 
Specifically, the ISDA protocol replaces references to USD LIBOR in 
adhering parties' derivative transaction contracts with a rate equal to 
(i) SOFR, compounded in arrears for the appropriate tenor,\64\ plus 
(ii) a stated spread adjustment based on the appropriate tenor (the 
``Fallback Rate (SOFR)''). The stated spread adjustments of the ISDA 
protocol are identical to the tenor spread adjustments specified in the 
LIBOR Act.\65\ As of July 6, 2022, over 15,200 entities have adhered to 
the ISDA protocol to amend their derivative transactions.\66\
---------------------------------------------------------------------------

    \63\ ISDA, ISDA 2020 IBOR Fallbacks Protocol (Oct. 23, 2020), 
https://assets.isda.org/media/3062e7b4/08268161-pdf.
    \64\ For purposes of this calculation, SOFR generally is 
compounded in arrears over an accrual period corresponding to the 
tenor of the LIBOR referenced in the covered contract. That 
compounded rate is annualized, and the day count convention is 
adjusted to match that of LIBOR. Bloomberg Professional Services, 
Fact Sheet: IBOR Fallbacks (Dec. 13, 2021), https://assets.bbhub.io/professional/sites/10/Factsheet-IBOR-Fallbacks_V4_Dec2021.pdf (cited 
in response to FAQ 3 of ISDA's ``2020 IBOR Fallbacks Protocol (IBOR 
Fallbacks Protocol) FAQs''). See also Bloomberg Professional 
Services, IBOR Fallback Rate Adjustments Rule Book (Dec. 13, 2021), 
https://assets.bbhub.io/professional/sites/10/IBOR-Fallback-Rate-Adjustments-Rule-Book_V3_Dec2021.pdf (for complete discussion of the 
calculation).
    \65\ ISDA based its spread adjustments on a historical median 
over a five-year lookback period calculating the difference between 
USD LIBOR and SOFR. ARRC, ARRC Announces Further Details Regarding 
Its Recommendation of Spread Adjustments for Cash Products (June 30, 
2020), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_Recommendation_Spread_Adjustments_Cash_Products_Press_Release.pdf.
    \66\ See ISDA, ISDA 20202 IBOR Fallbacks Protocol--List of 
Adhering Parties, https://www.isda.org/protocol/isda-2020-ibor-fallbacks-protocol/adhering-parties (last visited July 7, 2022).
---------------------------------------------------------------------------

    The Board has reviewed the ISDA protocol and believes the rate 
specified in the ISDA protocol would be a reasonable, SOFR-based 
benchmark replacement for LIBOR for derivative transactions. Further, 
as derivatives markets already appear to reference SOFR compounded in 
arrears and there has been significant adherence to the ISDA protocol, 
the Board believes it would be sensible to avoid disruption to these 
markets' efforts to transition away from referencing LIBOR. Promoting 
use of a consistent approach to replace LIBOR references in derivative 
transactions should enhance financial stability. This approach also is 
consistent with the recommendations of the ARRC.\67\ For these reasons, 
the proposed rule would select the Fallback Rate (SOFR) in the ISDA 
protocol as the Board-selected benchmark for derivative transactions. 
For purposes of the proposed rule, a ``derivative transaction'' is 
defined as ``a contract that would satisfy the criteria to be a 
`Protocol Covered Document' under the ISDA protocol but for the fact 
that one or more parties to such contract is not an `Adhering Party' as 
such term is used in the ISDA protocol, provided that, for purposes of 
this definition, `Protocol Effective Date' as such term is used in the 
ISDA protocol means the LIBOR replacement date for the relevant covered 
contract.'' \68\
---------------------------------------------------------------------------

    \67\ See ARRC, ARRC Best Practice Recommendations Related to 
Scope of Use of the Term Rate (May 4, 2022), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Scope_of_Use.pdf (recommending against the use of CME Term SOFR 
for the vast majority of the derivatives markets because these 
markets already reference SOFR compounded in arrears).
    \68\ Section 253.2 of the proposed rule. ``Protocol Covered 
Documents'' include (i) master agreements incorporating certain ISDA 
definitions booklets (each a ``covered ISDA definitions booklet''), 
including the 2006 ISDA Definitions and the 2000 ISDA Definitions, 
as published by ISDA, and referencing LIBOR or another specified 
IBOR (each a ``covered master agreement''); (ii) confirmations that 
supplement, form part of and are subject to, or are otherwise 
governed by, a covered master agreement; and (iii) any ISDA credit 
support document, including the 1994 ISDA Credit Support Annex and 
the 2014 Standard Credit Support Annex, that incorporates a covered 
ISDA definition booklet and references LIBOR or another specified 
IBOR. ISDA, ISDA 2020 IBOR Fallbacks Protocol 14-16(Oct. 23, 2020), 
https://assets.isda.org/media/3062e7b4/08268161-pdf.
---------------------------------------------------------------------------

    ISDA has selected Bloomberg Index Services Limited (Bloomberg) to 
calculate and publish the Fallback Rate (SOFR) referenced in its ISDA 
protocol.\69\ Similar to how IBA requires a license for certain uses of 
LIBOR,\70\ the use of the Fallback Rate (SOFR) is subject to certain 
licensing or other usage terms imposed by Bloomberg.\71\ Under its 
present usage terms, Bloomberg waives usage fees for users with less 
than $5 billion of total assets and charges one annual license fee for 
use of its IBOR fallbacks data.\72\
---------------------------------------------------------------------------

    \69\ ISDA, Bloomberg Selected as Fallback Adjustment Vendor 
(July 31, 2019), https://www.isda.org/2019/07/31/bloomberg-selected-as-fallback-adjustment-vendor.
    \70\ IBA, About, https://www.theice.com/iba/about#licensing 
(last visited July 7, 2022).
    \71\ See Bloomberg Prof'l Servs., IBOR Fallback Usage Terms 
(Sept. 27, 2021), https://assets.bbhub.io/professional/sites/27/ISDA-IBOR-Fallbacks-Web-Terms1.pdf.
    \72\ Id. The asset threshold of $5 billion applies to a user and 
its affiliates as one group and can be based on assets under 
management, the value of assets on its balance sheet, or another 
objective measure that Bloomberg may reasonably employ. Id.
---------------------------------------------------------------------------

2. Cash Transactions
a. Cash Transactions That Are Not Consumer Loans or Covered GSE 
Contracts
    With respect to cash transactions that are not consumer loans or 
covered GSE contracts, consistent with the ARRC's recommendations,\73\ 
the Board believes that references to overnight LIBOR should be 
replaced by SOFR plus the static spread adjustment in the LIBOR Act for 
overnight LIBOR (0.644 bps). With respect to such cash transactions 
that reference one-month, three-month, six-month, or 12-month LIBOR, 
the Board believes that a forward-looking term rate based on SOFR, 
including the applicable tenor spread adjustment specified in the LIBOR 
Act, would be an appropriate replacement. For these LIBOR contracts, 
the Board notes that, in July 2021, the ARRC formally recommended the 
forward-looking SOFR term rates administered by CME Group Benchmark 
Administration, Ltd. (CME Group).\74\ These forward-looking SOFR term 
rates are calculated by first projecting a possible path of overnight 
rates that is consistent with the observable averages implied by SOFR-
based derivative contracts and then creating averages over standard 
tenors of that projected path of overnight rates.\75\

[[Page 45275]]

The ARRC made its recommendation after considering, among other things: 
(i) the fact that CME Group's term rates were rooted in a robust and 
sustainable base of derivative transactions over time; (ii) the rates' 
limited scope of use that should support their stability over time; 
(iii) continued growth in overnight SOFR-linked derivatives volumes; 
(iv) visible progress to deepen SOFR derivative transactions' 
liquidity; and (v) visible growth in offerings of cash transactions 
linked to averages of SOFR.\76\ For similar reasons, the Board believes 
that the forward-looking SOFR term rates administered by CME Group and 
published in one-, three-, six-, and 12-month tenors (together, ``CME 
Term SOFR'') generally would be an appropriate basis for a benchmark 
replacement for one-, three-, six-, and 12-month LIBOR, respectively. 
Therefore, for cash transactions that are not consumer loans or covered 
GSE contracts, the proposed rule would replace references to one-, 
three-, six-, and 12-month LIBOR with (i) the corresponding one-, 
three-, six-, or 12-month CME Term SOFR, plus (ii) the applicable tenor 
spread adjustment specified in the LIBOR Act.
---------------------------------------------------------------------------

    \73\ See ARRC, ARRC Best Practice Recommendations Related to 
Scope of Use of the Term Rate (May 4, 2022), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Scope_of_Use.pdf.
    \74\ ARRC, ARRC Formally Recommends Term SOFR (July 29, 2021), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Press_Release_Term_SOFR.pdf.
    \75\ In projecting the path of overnight rates, CME Group uses a 
combination of one-month and three-month SOFR futures contracts to 
ensure that as many data points as possible are used to calculate 
the term structure. CME Grp., CME Term SOFR Reference Rates 
Benchmark Methodology (May 9, 2022), https://www.cmegroup.com/market-data/files/cme-term-sofr-reference-rates-benchmark-methodology.pdf.
    \76\ ARRC, ARRC Formally Recommends Term SOFR (July 29, 2021), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/ARRC_Press_Release_Term_SOFR.pdf. See also ARRC, ARRC Announces Key 
Principles for a Forward-Looking SOFR Term Rate (Apr. 20, 2021), 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/20210420-arrc-press-release-term-rate; ARRC, ARRC Identifies Market 
Indicators to Support a Recommendation of a Forward-Looking SOFR 
Term Rate (May 6, 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/20210506-term-rate-indicators-press-release.
---------------------------------------------------------------------------

    CME Group calculates and publishes CME Term SOFR.\77\ Similar to 
how IBA requires a license for certain uses of LIBOR,\78\ the use of 
CME Term SOFR is subject to certain licensing or other usage terms 
imposed by CME Group.\79\ Under its present usage terms, an end user 
seeking only to enter into a transaction does not need a license from 
CME Group.\80\ In addition, CME Group has waived fees for users of CME 
Term SOFR for cash transactions through 2026.\81\
---------------------------------------------------------------------------

    \77\ CME Grp., CME Term SOFR Rates, https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html (last 
visited July 7, 2022).
    \78\ IBA, About, https://www.theice.com/iba/about#licensing 
(last visited July 7, 2022).
    \79\ See CME Grp., CME Data Terms of Use, https://www.cmegroup.com/trading/market-data-explanation-disclaimer.html 
(last visited July 7, 2022); CME Grp., CME Term SOFR Reference 
Rates--Frequently Asked Questions, FAQ 8-10 (Apr. 19, 2022), https://www.cmegroup.com/articles/faqs/cme-term-sofr-reference-rates.html.
    \80\ CME Group defines an ``end user'' as an individual or 
entity that is a counterparty or guarantor to the applicable cash 
transaction or derivative transaction with the licensee of CME Term 
SOFR. CME Grp., CME Term SOFR Reference Rates--Frequently Asked 
Questions, FAQ 10 (Apr. 19, 2022), https://www.cmegroup.com/articles/faqs/cme-term-sofr-reference-rates.html.
    \81\ CME Grp., CME Group Benchmark Fee List (Dec. 2021), https://www.cmegroup.com/files/download/benchmark-data-fee-list.pdf.
---------------------------------------------------------------------------

b. Cash Transactions That Are Consumer Loans
    Under the LIBOR Act, any Board-selected benchmark replacement 
applicable to consumer loans shall, for the one-year period beginning 
on the LIBOR replacement date, incorporate an amount that modifies the 
otherwise-applicable tenor spread adjustment specified in the Act.\82\ 
Specifically, section 104(e)(2) of the LIBOR Act requires that, during 
the one-year period, the Board-selected benchmark replacement for 
consumer loans incorporate an amount that transitions linearly for each 
business day during that period from (i) the difference between the 
Board-selected benchmark replacement and the corresponding LIBOR tenor 
determined as of the day immediately before the LIBOR replacement date 
to (ii) the applicable tenor spread adjustment specified in the LIBOR 
Act (the transition tenor spread adjustment).\83\ This transition tenor 
spread adjustment is intended to prevent consumer borrowers from 
experiencing significant, unexpected shifts in borrowing rates on and 
immediately following the LIBOR replacement date.
---------------------------------------------------------------------------

    \82\ Act section 104(e)(2). See Sec.  253.2 of the proposed rule 
for the definition of ``consumer loan.''
    \83\ Id.
---------------------------------------------------------------------------

    The Board believes that a forward-looking term rate based on SOFR 
would be an appropriate benchmark replacement for consumer loans. 
Accordingly, for consumer loans during the one-year period beginning on 
the LIBOR replacement date, the proposed rule would replace one-, 
three-, six-, and 12-month LIBOR with (i) the corresponding one-, 
three-, six-, or 12-month CME Term SOFR, plus (ii) the transition tenor 
spread adjustment.
    Refinitiv Limited has stated it will publish and provide rates for 
consumer loans that sum (i) CME Term SOFR and (ii) the transition tenor 
spread adjustment (for the one-year period beginning on the LIBOR 
replacement date) or the tenor spread adjustment specified in the LIBOR 
Act (after that one-year period), consistent with the proposed rule and 
the recommendations of the ARRC.\84\ Refinitiv identifies these rates 
as ``USD IBOR Cash Fallbacks'' for ``Consumer'' products. For clarity, 
and particularly because calculation of the transition tenor spread 
adjustment applicable to consumer loans during the one-year period 
beginning on the LIBOR replacement rate may be complex, the proposed 
rule indicates that these rates from Refinitiv would be deemed equal to 
the rates in the proposed rule.\85\ Use of these ``USD IBOR Cash 
Fallbacks'' for ``Consumer'' products may be subject to certain 
licensing or other usage terms imposed by Refinitiv Limited.
---------------------------------------------------------------------------

    \84\ The ARRC selected Refinitiv Limited to publish its 
recommended spread adjustments and spread-adjusted rates for cash 
products. ARRC, ARRC Announces Refinitiv as Publisher of its Spread 
Adjustment Rates for Cash Products (Mar. 17, 2021), https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/20210317-press-release-Spread-Adjustment-Vendor-Refinitiv.pdf. With respect 
to the transition tenor spread adjustment, Refinitiv has stated it 
will incorporate a two-week lookback period for SOFR (from June 19, 
2023, through June 30, 2023) in determining the difference between 
the Board-selected benchmark replacement and the corresponding LIBOR 
tenor as of the day before the LIBOR replacement date. Refinitiv 
Benchmark Servs. (UK) Ltd., USD IBOR Institutional Cash Fallbacks 
Benchmark, USD IBOR Consumer Cash Fallbacks (1 Week, 2 Months) 
Benchmark, USD IBOR Consumer Cash Fallbacks (1, 3, 6 Months) 
Prototype Methodology 11 (Jan. 3, 2022), https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/refinitiv-usd-ibor-cash-fallbacks-methodology.pdf. The Board believes this method 
of determining the difference between the Board-selected benchmark 
replacement and the corresponding LIBOR tenor as of June 30, 2023, 
is consistent with the provision in the Act.
    \85\ See Sec.  253.4(b)(2)(iii) of the proposed rule. Refinitiv 
also has stated it will publish ``USD IBOR Cash Fallbacks'' for 
``Institutional'' products. These rates are expected to be 
consistent with the proposed rule's benchmark replacement for cash 
transactions that are not consumer loans. The Board observes that 
parties to cash transactions that are not consumer loans should be 
able to compute easily the proposed benchmark replacement rate and, 
if needed, verify that any vendor's reported rate (including that of 
Refinitiv) is consistent with that proposed replacement rate such 
that no provision similar to Sec.  253.4(b)(2)(iii) is needed for 
these transactions.
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c. Cash Transactions That Are Covered GSE Contracts
    Under the proposed rule, a ``covered GSE contract'' would be ``a 
covered contract for which a GSE is identified as a party in the 
transaction documents and that is (i) a commercial or multifamily 
mortgage loan, (ii) a commercial or multifamily mortgage-backed 
security, (iii) a collateralized mortgage obligation, (iv) a credit 
risk transfer transaction, or (v) a Federal Home Loan Bank advance.'' 
\86\
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    \86\ See Sec.  253.2 of the proposed rule. A GSE, or government-
sponsored enterprise, would be defined as an entity established or 
chartered by the U.S. government to serve public purposes specified 
by the U.S. Congress but whose debt obligations are not explicitly 
guaranteed by the full faith and credit of the U.S. government. Id.

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[[Page 45276]]

    As with other cash transactions that are not consumer loans, the 
Board believes that references to overnight LIBOR in covered GSE 
contracts should be replaced by SOFR plus the static spread adjustment 
in the LIBOR Act for overnight LIBOR. However, with respect to covered 
GSE contracts referencing one-month, three-month, six-month, or 12-
month LIBOR, the Board notes that, since 2020, the Federal Housing 
Finance Agency has worked with its supervised GSEs--the Federal 
National Mortgage Association, the Federal Home Loan Mortgage 
Corporation, and the Federal Home Loan Banks--generally to replace USD 
LIBOR with the 30-calendar-day compounded average of SOFR (30-day 
Average SOFR), as published by the FRBNY,\87\ in their newly issued 
multifamily loans and other structured products that are covered GSE 
contracts.\88\ To enhance liquidity for both these newly issued and 
legacy LIBOR-based products, the Board's proposed rule would select as 
the benchmark replacement for covered GSE contracts (i) 30-day Average 
SOFR plus (ii) the applicable tenor spread adjustment specified in the 
LIBOR Act. The Board invites comment as to whether selecting the same 
SOFR-based replacement for LIBOR for legacy covered GSE contracts as 
those used for similar, recently issued contracts would promote greater 
liquidity for legacy and newly issued covered GSE contracts.
---------------------------------------------------------------------------

    \87\ Fed. Res. Bk. of NY, Additional Information about Reference 
Rates Administered by the New York Fed, https://www.newyorkfed.org/markets/reference-rates/additional-information-about-reference-rates#sofr_ai_calculation_methodology (last visited July 7, 2022) 
(detailing the calculation methodology for the SOFR averages and 
index).
    \88\ Under the proposed rule, ``covered GSE contract'' would be 
defined to be a contract for which a GSE is identified as a party in 
the transaction documents that is (i) a commercial or multifamily 
mortgage loan, (ii) a commercial or multifamily mortgage-backed 
security, (iii) a collateralized mortgage obligation, (iv) a credit 
risk transfer transaction, or (v) a Federal Home Loan Bank advance. 
Section 253.2 of the proposed rule. ``Government-sponsored 
enterprise (GSE)'' is defined consistent with the Board's capital 
rule, 12 CFR 217.2, to mean an entity established or chartered by 
the U.S. government to serve public purposes specified by the U.S. 
Congress but whose debt obligations are not explicitly guaranteed by 
the full faith and credit of the U.S. government. Section 253.2 of 
the proposed rule.
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3. Determination Date for the Benchmark Replacement
    As discussed, under the proposed rule, references to ``LIBOR'' in 
LIBOR contracts generally would be replaced with the proposed Board-
selected benchmark replacement, without any modification of other 
contractual provisions.\89\ For clarity, the proposed rule indicates 
that selection and use of the Board-selected benchmark replacement 
would not affect the dates on which the contractual rates are 
determined.\90\ For example, if a covered contract that is a cash 
transaction originally indicated that a three-month LIBOR rate would be 
determined on March 31, June 30, September 30, and December 31 of each 
year, then, following the LIBOR replacement date, the corresponding 
Board-selected benchmark replacement rate (three-month CME Term SOFR) 
also would be determined on March 31, June 30, September 30, and 
December 31 of each year. Similarly, if a covered contract that is a 
cash transaction originally indicated that a 12-month LIBOR rate would 
be determined using the value as of a prior date (e.g., 45 days prior 
to the payment date), then following the LIBOR replacement date, the 
corresponding Board-selected benchmark replacement rate (12-month CME 
Term SOFR) also would be determined using that benchmark replacement's 
value as of the specified prior date. To the extent that the specified 
prior date precedes the LIBOR replacement date, the benchmark 
originally specified in the contract--here, 12-month LIBOR--would be 
used, consistent with the covered contract's terms. However, once the 
parties would look to a benchmark value as of a date on or after the 
LIBOR replacement date under the covered contract's terms, the 
corresponding Board-selected benchmark replacement--here, 12-month CME 
Term SOFR--would be used.
---------------------------------------------------------------------------

    \89\ For example, if a LIBOR contract indicated that interest 
due on borrowings for periods between published LIBOR tenors should 
be calculated by interpolation, the proposed rule would not affect 
the parties' ability to use interpolation except that the 
corresponding Board-selected benchmark replacement values should be 
used in place of the LIBOR values for the interpolation. Similarly, 
if the LIBOR contract provided that interest should be on a fixed 
rate for some specified period and on a floating interest rate based 
on LIBOR only after that specified period for the remaining maturity 
of the loan, then the proposed rule only would replace the LIBOR 
reference with the relevant Board-selected benchmark replacement and 
would not affect the fixed-rate period or other terms of the 
contract.
    \90\ Section 253.4(d) of the proposed rule.
---------------------------------------------------------------------------

E. Section 253.5 Benchmark Replacement Conforming Changes

    The LIBOR Act authorizes the Board to require any additional 
technical, administrative, or operational changes, alterations, or 
modifications to LIBOR contracts based on a determination such changes, 
alterations, or modifications would address one or more issues 
affecting the implementation, administration, and calculation of the 
Board-selected benchmark replacement in LIBOR contracts (conforming 
changes).\91\ At this time, the Board does not believe any additional 
conforming changes would be needed for successful implementation of the 
Board-selected benchmark replacements indicated in Sec.  253.4 of the 
proposed rule. However, the Board reserves the authority, in its 
discretion, to require any additional conforming changes, by regulation 
or order.\92\
---------------------------------------------------------------------------

    \91\ Act section 104(e).
    \92\ Id.
---------------------------------------------------------------------------

    For clarity, the proposed rule also indicates that, with respect to 
a LIBOR contract that is not a consumer loan, a calculating person may 
make any additional technical, administrative, or operational changes, 
alterations or modifications that, in that person's reasonable 
judgment, would be necessary or appropriate to permit the 
implementation, administration, and calculation of the Board-selected 
benchmark replacement under or with respect to a LIBOR contract after 
giving due consideration to any changes, alterations, or modifications 
otherwise required by the Board under the proposed rule.\93\ This 
proposed language mirrors sections 103(4)(B) and 104(d) of the LIBOR 
Act.
---------------------------------------------------------------------------

    \93\ Section 253.5(a)(2) of the proposed rule.
---------------------------------------------------------------------------

F. Section 253.6 Preemption

    As noted, section 107 of the LIBOR Act expressly preempts any 
provision of state or local law relating to the selection or use of a 
benchmark replacement or related conforming changes, or expressly 
limiting the manner of calculating interest (including the compounding 
of interest) as that provision applies to the selection or use of a 
Board-selected benchmark replacement or benchmark replacement 
conforming changes.\94\ For clarity, Sec.  253.6 of the proposed rule 
references and repeats the statutory language concerning preemption of 
such state or local law, statute, rule, regulation, or standard by a 
final rule issued by the Board pursuant to the LIBOR Act.
---------------------------------------------------------------------------

    \94\ Act section 107.
---------------------------------------------------------------------------

G. Effective Date

    The Board proposes that the proposed rule, if finalized, will 
become effective on the first day of the next calendar quarter that 
begins 30 days after publication of the final rule in the Federal 
Register. The Board notes that the LIBOR Act directs the Board to 
promulgate regulations not later than

[[Page 45277]]

180 days after the date of enactment.\95\ As a result, the effective 
date of the final rule would be well in advance of the LIBOR 
replacement date.
---------------------------------------------------------------------------

    \95\ One hundred eighty days after the date of enactment, March 
15, 2022, is September 11, 2022.
---------------------------------------------------------------------------

III. Request for Comment

    The Board invites comment on all aspects of the proposed rule. In 
addition, the Board invites comment on the following specific questions 
related to the proposed rule:
     What, if any, alternative SOFR-based benchmark 
replacements should the Board consider for derivative transactions 
instead of Fallback Rate (SOFR) as defined in the ISDA protocol (e.g., 
a type of SOFR average)? What, if any, alternative SOFR-based benchmark 
replacements should the Board consider for covered GSE contracts 
instead of 30-day Average SOFR, such as SOFR term rates? What, if any, 
alternative SOFR-based benchmark replacements should the Board consider 
for other cash transactions instead of CME Term SOFR, such as a type of 
SOFR average or SOFR term rates that may be offered by a provider other 
than CME? Why would those alternatives be better choices than those 
indicated in the proposed rule? Should the Board identify a single 
Board-selected benchmark replacement for all covered contracts?
     Are there any categories of covered contracts for which 
the Board should consider an alternative SOFR-based Board-selected 
benchmark replacement? What aspects of the nature, circumstances, or 
characteristics (e.g., issuer type, lender type, borrower type, 
structure, use) of those contracts warrant consideration of a different 
SOFR-based benchmark replacement?
     What, if any, additional clarifications should the Board 
consider regarding the Board-selected benchmark replacements? Why would 
those clarifications be helpful?
     What, if any, additional clarifications should the Board 
consider regarding the definition of ``covered contract''? For example, 
should the Board clarify that Sec.  253.3(a)(2)(ii)(B) of the proposed 
regulation--which generally nullifies any references in the fallback 
provisions of a LIBOR contract to a requirement that a person (other 
than a benchmark administrator) conduct a poll, survey, or inquiries 
for quotes or information concerning interbank lending or deposit 
rates--applies to a contract that requires a person to poll for 
``Eurodollar'' deposit rates? What, if any, additional clarifications 
should the Board consider regarding other defined terms in the proposed 
rule?
     Is the proposed provision concerning the application of 
the proposed rule to non-covered contracts sufficiently clear? What, if 
any, additional clarifications should the Board consider with respect 
to non-covered contracts? For example, should the final rule address 
the ambiguity discussed above regarding LIBOR contracts with fallback 
provisions that lack an express nonrepresentativeness trigger, perhaps 
by indicating that those contracts' fallback provisions would be 
triggered on the LIBOR replacement date? \96\
---------------------------------------------------------------------------

    \96\ See discussion concerning non-covered contracts in section 
II.C.
---------------------------------------------------------------------------

     What, if any, additional clarifications, should the Board 
consider regarding selections of benchmark replacements by determining 
persons, including their ability to select a replacement on or before 
the LIBOR replacement date? For example, should the Board consider 
requiring a determining person to provide notice to one or more parties 
concerning the selection and, if so, what specific notification 
requirements would be appropriate and why? What, if any, potential 
litigation or other risks could result from such a notification 
requirement, and how might the Board address those risks?
     What, if any, benchmark replacement conforming changes 
should the Board consider (e.g., clarification regarding calculation of 
any contractual rate cap or floor in light of the Act's specified tenor 
adjustments, application of any contractual lookback period or other 
term related to determination of the precise applicable benchmark 
replacement rate)? Should those conforming changes apply to all covered 
contracts or just one or more categories of covered contracts?
     Should the Board incorporate into the regulation the 
statutory protections in section 105 of the Act? If so, should the 
Board make any clarifications related to these statutory protections?

IV. Regulatory Analyses

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), 
requires an agency to consider the impact of its proposed rules on 
small entities. In connection with a proposed rule, the RFA generally 
requires an agency to prepare an Initial Regulatory Flexibility 
Analysis (IRFA) describing the impact of the rule on small entities, 
unless the head of the agency certifies that the proposed rule will not 
have a significant economic impact on a substantial number of small 
entities and publishes such certification along with a statement 
providing the factual basis for such certification in the Federal 
Register. An IRFA must contain (i) a description of the reasons why 
action by the agency is being considered; (ii) a succinct statement of 
the objectives of, and legal basis for, the proposed rule; (iii) a 
description of, and, where feasible, an estimate of the number of small 
entities to which the proposed rule will apply; (iv) a description of 
the projected reporting, recordkeeping, and other compliance 
requirements of the proposed rule, including an estimate of the classes 
of small entities that will be subject to the requirement and the type 
of professional skills necessary for preparation of the report or 
record; (v) an identification, to the extent practicable, of all 
relevant Federal rules that may duplicate, overlap with, or conflict 
with the proposed rule; and (vi) a description of any significant 
alternatives to the proposed rule that accomplish its stated 
objectives.
    The Board is providing an IRFA with respect to the proposed rule. 
The Board invites comment on all aspects of this IRFA.
a. Reasons Action Is Being Considered
    The Board is issuing the proposed rule to implement its statutory 
mandate in the LIBOR Act. Specifically, section 110 of the Act directs 
the Board to promulgate regulations to carry out the Act not later than 
180 days after enactment. In general, the proposed rule would codify 
into regulation the rules that are laid out in the Act; under the Act, 
as described below, the Board's discretion is limited to a few key 
areas, such as the selection of Board-selected benchmark replacements 
based on SOFR.
b. Objectives of the Proposed Rule
    Congress enacted the LIBOR Act to provide a uniform, nationwide 
solution for replacing references to LIBOR in tough legacy contracts--
contracts governed by U.S. law that reference USD LIBOR and that will 
not mature until after USD LIBOR ceases or becomes nonrepresentative, 
but have no effective means to replace LIBOR after it ceases or becomes 
nonrepresentative. The statute directs the Board to select one or more 
benchmark replacements based on SOFR that will replace LIBOR by 
operation of law following the LIBOR replacement date. In this way, the 
Act and the Board's implementing regulation should preclude disruptive 
litigation related to tough legacy contracts.

[[Page 45278]]

c. Description and Estimate of the Number of Small Entities
    The proposed rule would primarily apply to the parties to covered 
contracts, as defined in Sec.  253.3(a)(2) of the proposal.\97\ Parties 
to covered contracts may include firms of any size and in any industry 
and are not limited to Board-regulated institutions or even firms 
engaged in financial activities. In general, covered contracts would 
include (i) LIBOR contracts that contain no fallback provisions, (ii) 
LIBOR contracts that contain inadequate fallback provisions (defined as 
LIBOR contracts with fallback provisions that identify neither a 
specific benchmark replacement nor a determining person), or (iii) 
LIBOR contracts for which a determining person has failed to select a 
benchmark replacement by the earlier of the LIBOR replacement date or 
the latest date for selecting a benchmark replacement according to the 
terms of the LIBOR contract. Covered contracts would not include any 
LIBOR contract that the parties have agreed in writing shall not be 
subject to the LIBOR Act. Covered contracts also would not include 
LIBOR contracts where a determining person selects the Board-selected 
benchmark replacement by the earlier of the LIBOR replacement date and 
the latest date for selecting a benchmark replacement according to the 
terms of the LIBOR contract. The proposed definition of ``covered 
contract'' is derived from and designed to match the scope of contracts 
designated in section 104(a)-(c) of the Act.
---------------------------------------------------------------------------

    \97\ The proposed rule also would apply to determining persons 
and calculating persons in respect of covered contracts, who may not 
themselves be parties to the covered contract. In addition, Sec.  
253.3(b)(2) of the proposed rule would apply to non-covered 
contracts.
---------------------------------------------------------------------------

    The Board does not believe that it is feasible to provide an 
estimate of the number of small entities to which the proposed rule 
will apply.\98\ Although estimates exist of the total outstanding 
exposure to USD LIBOR across all firms and transactions,\99\ the Board 
is not aware of any method of determining what share of this 
outstanding exposure is attributable to covered contracts, or of 
determining the identity, industry, or size of the parties to those 
covered contracts, and the Board is not aware of any other data sources 
sufficient to provide an estimate of the number of smaller firms to 
which the proposed rule would apply.
---------------------------------------------------------------------------

    \98\ The Board generally uses the industry-specific size 
standards adopted by the Small Business Administration (SBA) for 
purposes of estimating the number of small entities to which a 
proposed rule would apply. See 13 CFR 121.210. Consistent with the 
SBA's General Principles of Affiliation, the Board would include the 
assets of all domestic and foreign affiliates toward the applicable 
size threshold when determining whether to classify a particular 
entity as a small entity. See 13 CFR 121.103. The Board has 
considered the SBA standards and expects that a potentially 
substantial number of small entities, across many industries, likely 
would be affected by the proposed rule. However, for the reasons 
discussed above, the Board does not believe it has sufficient data 
to provide a reasonable estimate of the precise number of small 
entities to which the proposed rule would apply.
    \99\ As of the end of 2020, for example, the outstanding gross 
notional value of all financial products referencing U.S. dollar 
(USD) LIBOR was estimated to be $223 trillion. See ARRC, Progress 
Report: The Transition for U.S. Dollar LIBOR (Mar. 2021) at 3, 
https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2021/USD-LIBOR-transition-progress-report-mar-21.pdf.
---------------------------------------------------------------------------

d. Estimating Compliance Requirements
    The proposed rule would not impose any reporting or recordkeeping 
requirements on the parties to covered or non-covered contracts. With 
respect to broader compliance requirements, the proposed rule would not 
require the parties to covered contracts to take any affirmative steps 
(such as amending their contracts).\100\ Rather, the proposed rule 
would codify requirements under section 104 of the Act that modify the 
terms of covered contracts by operation of law by replacing references 
to LIBOR with the applicable Board-selected benchmark replacement 
(i.e., Fallback Rate (SOFR) as defined in the ISDA protocol, 30-day 
Average SOFR, or CME Term SOFR), as defined in Sec.  253.2 and Sec.  
253.4 of the proposal. As a result of this modification, parties to 
covered contracts may need to alter how they perform their contractual 
obligations. For example, in the case of a bilateral loan agreement 
that is a covered contract, the proposal would, as required by the Act, 
replace references to LIBOR with the applicable Board-selected 
benchmark replacement on and after the LIBOR replacement date. As a 
result, after that date, amounts due under such loan agreement would 
need to be determined by reference to the Board-selected benchmark 
replacement, rather than LIBOR, and those amounts due likely would not 
be identical. For this reason, the Board expects that the proposal 
could have a potentially significant economic impact on parties to 
covered contracts. However, the Act requires the Board to identify one 
or more Board-selected benchmark replacements based on SOFR, and the 
Board has proposed benchmark replacements that were recommended by the 
ARRC and ISDA after wide consultation and that are consistent with 
market practices. The Board does not believe that selecting alternative 
SOFR-based benchmark replacements (other than those proposed in Sec.  
253.4 of the proposal) would materially reduce the potential economic 
impact of the proposal.
---------------------------------------------------------------------------

    \100\ Similarly, the proposed rule would not require a 
determining person in respect of a covered contract to select a 
particular benchmark replacement (or select any benchmark 
replacement at all) and would not require a calculating person in 
respect of a covered contract to make any or a particular benchmark 
replacement conforming change.
---------------------------------------------------------------------------

e. Duplicative, Overlapping, and Conflicting Rules
    The Board is not aware of any federal rules that may duplicate, 
overlap with, or conflict with the proposed rule.
f. Significant Alternatives Considered
    Although section 110 of the LIBOR Act directs the Board to 
promulgate regulations to carry out the Act, the Board's discretion 
under the Act is limited to (i) selecting SOFR-based benchmark 
replacements and adjusting them to include the statutorily prescribed 
tenor spread adjustment (and, if applicable, transition tenor spread 
adjustment), (ii) determining any benchmark replacement conforming 
changes, and (iii) determining the LIBOR replacement date (in the event 
that any LIBOR tenor ceases or becomes nonrepresentative prior to the 
planned LIBOR cessation date).\101\ Given its limited discretion, the 
Board was unable to consider alternatives to the proposed rule that 
would be significantly different from the statutory scheme of the LIBOR 
Act.
---------------------------------------------------------------------------

    \101\ At this time, the Board does not propose to determine any 
benchmark replacement conforming changes and does not propose to 
determine that any LIBOR tenor will cease or become 
nonrepresentative prior to the first London banking day after June 
30, 2023.
---------------------------------------------------------------------------

    As discussed, the Board has considered and invites comment on 
possible alternative SOFR-based benchmark replacements. The Board also 
invites comment on whether it should consider any benchmark replacement 
conforming changes.

B. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board may not conduct 
or sponsor, and a respondent is not required to respond to, an 
information collection unless it displays a valid Office of Management 
and Budget (OMB) control number. The Board reviewed the proposed rule 
under the authority delegated to the Board by the OMB and determined 
that it contains no collections of information under the

[[Page 45279]]

PRA.\102\ Accordingly, there is no paperwork burden associated with the 
rule.
---------------------------------------------------------------------------

    \102\ See 44 U.S.C. 3502(3).
---------------------------------------------------------------------------

C. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471, 12 U.S.C. 4809) requires the federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The Board has sought to present the proposed rule in a 
simple and straightforward manner and invites comment on the use of 
plain language and whether any part of the proposed rule could be more 
clearly stated.

List of Subjects in 12 CFR Part 253

    Banks and banking, Interest rates

Authority and Issuance

    For the reasons stated in the preamble, the Board of Governors of 
the Federal Reserve System proposes to add new part 253 to 12 CFR 
chapter II, as follows:

PART 253--REGULATIONS IMPLEMENTING THE ADJUSTABLE INTEREST RATE 
(LIBOR) ACT (REGULATION ZZ)

0
1. Add part 253 to read as follows:

PART 253--REGULATIONS IMPLEMENTING THE ADJUSTABLE INTEREST RATE 
(LIBOR) ACT (REGULATION ZZ)

Sec.
253.1 Authority, Purpose, and Scope.
253.2 Definitions.
253.3 Applicability.
253.4 Board-selected Benchmark Replacements.
253.5 Benchmark Replacement Conforming Changes.
253.6 Preemption.

    Authority: Pub. L. 117-103, div. U.


Sec.  253.1  Authority, Purpose, and Scope.

    (a) Authority. The Board of Governors of the Federal Reserve System 
(Board) has issued this part (Regulation ZZ) under the authority of 
Public Law 117-103, division U (the ``Adjustable Interest Rate (LIBOR) 
Act'').
    (b) Purpose. The purposes of the Adjustable Interest Rate (LIBOR) 
Act are to establish a clear and uniform process, on a nationwide 
basis, for replacing the overnight and one-, three-, six-, and 12-month 
tenors of U.S. dollar LIBOR in existing contracts that do not provide 
for the use of a clearly defined or practicable replacement benchmark 
rate; to preclude litigation related to such existing contracts; to 
allow existing contracts that reference LIBOR but provide for the use 
of a clearly defined and practicable replacement rate to operate 
according to their terms; and to address LIBOR references in Federal 
law.\1\ This regulation implements the statute by defining terms used 
in the statute and establishing Board-selected benchmark replacements 
for LIBOR contracts.
---------------------------------------------------------------------------

    \1\ The Act does not affect the ability of parties to use any 
appropriate benchmark rate in new contracts.
---------------------------------------------------------------------------

    (c) Scope. As described in Sec.  253.3(a), the Adjustable Interest 
Rate (LIBOR) Act and this regulation apply by their terms to existing 
contracts governed by federal law or the law of any state that 
reference the overnight and one-, three-, six-, and 12-month tenors of 
U.S. dollar LIBOR and do not have terms that provide for the use of a 
clearly defined and practicable replacement benchmark rate following 
the LIBOR replacement date, unless the parties to that contract agree 
in writing that the contract is not subject to the Adjustable Interest 
Rate (LIBOR) Act. Except as provided in Sec.  253.3(b)(2), this 
regulation does not apply to or affect existing or prospective 
contracts that do not reference the overnight or one-, three-, six-, or 
12-month tenors of U.S. dollar LIBOR or have terms providing for the 
use of a clearly defined and practicable replacement benchmark for 
LIBOR (either directly or through selection by a determining person), 
even if that rate differs from the otherwise applicable Board-selected 
benchmark replacement.


Sec.  253.2  Definitions.

    30-day Average SOFR means the 30-calendar-day compounded average of 
SOFR, as published by the Federal Reserve Bank of New York or any 
successor administrator.
    Benchmark means an index of interest rates or dividend rates that 
is used, in whole or in part, as the basis of or as a reference for 
calculating or determining any valuation, payment, or other 
measurement.
    Benchmark administrator means a person that publishes a benchmark 
for use by third parties.
    Benchmark replacement means a benchmark, or an interest rate or 
dividend rate (which may or may not be based in whole or in part on a 
prior setting of LIBOR) to replace LIBOR or any interest rate or 
dividend rate based on LIBOR, whether on a temporary, permanent, or 
indefinite basis, under or with respect to a LIBOR contract.
    Benchmark replacement conforming change means any technical, 
administrative, or operational change, alteration, or modification that 
(i) the Board determines, in its discretion, would address one or more 
issues affecting the implementation, administration, and calculation of 
the Board-selected benchmark replacement in LIBOR contracts; or (ii) 
solely with respect to a LIBOR contract that is not a consumer loan, in 
the reasonable judgment of a calculating person, are otherwise 
necessary or appropriate to permit the implementation, administration, 
and calculation of the Board-selected benchmark replacement under or 
with respect to a LIBOR contract after giving due consideration to any 
benchmark replacement conforming changes determined by the Board under 
item (i) of this definition.
    Board-selected benchmark replacement means the benchmark 
replacements identified in Sec.  253.4 of this part.
    Business day means any day except for (i) a Saturday, (ii) a 
Sunday, (iii) a day on which the Securities Industry and Financial 
Markets Association recommends that the fixed income departments of its 
members be closed for the entire day for purposes of trading in United 
States government securities, or (iv) a day on which the Federal 
Reserve Bank of New York, with advance notice, chooses not to publish 
its Treasury repurchase agreement reference rates if participants in 
the Treasury repurchase agreement market broadly expect to treat that 
day as a holiday.
    Calculating person means, with respect to any LIBOR contract, any 
person, including the determining person, responsible for calculating 
or determining any valuation, payment, or other measurement based on a 
benchmark.
    CME Term SOFR means the CME Term SOFR Reference Rates published for 
one-, three-, six-, and 12-month tenors as administered by CME Group 
Benchmark Administration, Ltd. (or any successor administrator 
thereof).
    Consumer has the same meaning as in section 103 of the Truth in 
Lending Act (15 U.S.C. 1602).
    Consumer loan means a consumer credit transaction.
    Covered contract is defined in Sec.  253.3(a) of this part.
    Covered GSE contract means a covered contract for which a GSE is 
identified as a party in the transaction documents and that is (i) a 
commercial or multifamily mortgage loan, (ii) a commercial or 
multifamily mortgage-backed security, (iii) a collateralized mortgage 
obligation, (iv) a credit risk

[[Page 45280]]

transfer transaction, or (v) a Federal Home Loan Bank advance.
    Credit has the same meaning as in section 103 of the Truth in 
Lending Act (15 U.S.C. 1602).
    Derivative transaction means a contract that would satisfy the 
criteria to be a ``Protocol Covered Document'' under the ISDA protocol 
but for the fact that one or more parties to such contract is not an 
``Adhering Party'' as such term is used in the ISDA protocol, provided 
that, for purposes of this definition, ``Protocol Effective Date'' as 
such term is used in the ISDA protocol means the LIBOR replacement date 
for the relevant covered contract.
    Determining person means, with respect to any LIBOR contract, any 
person with the authority, right, or obligation, including on a 
temporary basis (as identified by the LIBOR contract or by the 
governing law of the LIBOR contract, as appropriate) to determine a 
benchmark replacement.
    Fallback provisions means terms in a LIBOR contract for determining 
a benchmark replacement, including any terms relating to the date on 
which the benchmark replacement becomes effective.
    Government-sponsored enterprise (GSE) means an entity established 
or chartered by the U.S. government to serve public purposes specified 
by the U.S. Congress but whose debt obligations are not explicitly 
guaranteed by the full faith and credit of the U.S. government.
    ISDA protocol means the ISDA 2020 IBOR Fallbacks Protocol published 
by the International Swaps and Derivatives Association, Inc., on 
October 23, 2020, and minor or technical amendments thereto.
    LIBOR (i) means the overnight and one-, three-, six-, and 12-month 
tenors of U.S. dollar LIBOR (formerly known as the London interbank 
offered rate) as administered by ICE Benchmark Administration Limited 
(or any predecessor or successor administrator thereof) and (ii) does 
not include the one-week or two-month tenors of U.S. dollar LIBOR.
    LIBOR contract means any contract, agreement, indenture, 
organizational document, guarantee, mortgage, deed of trust, lease, 
security (whether representing debt or equity, including any interest 
in a corporation, a partnership, or a limited liability company), 
instrument, or other obligation or asset that, by its terms, uses LIBOR 
as a benchmark.
    LIBOR replacement date means the first London banking day after 
June 30, 2023, unless the Board determines that any LIBOR tenor will 
cease to be published or cease to be representative on a different 
date.
    Non-covered contract is a LIBOR contract that is not a covered 
contract.
    Security has the same meaning as in section 2(a) of the Securities 
Act of 1933 (15 U.S.C. 77b(a)).
    SOFR means the Secured Overnight Financing Rate published by the 
Federal Reserve Bank of New York or any successor administrator.
    State means any state, commonwealth, territory, or possession of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.


Sec.  253.3  Applicability.

    (a) Covered contracts.
    (1) General requirement. On and after the LIBOR replacement date, 
the applicable Board-selected benchmark replacement shall be the 
benchmark replacement for a covered contract.
    (2) Definition. (i) For purposes of this part, a covered contract 
means a LIBOR contract with one of the following characteristics as of 
the LIBOR replacement date, after giving effect to paragraph (a)(2)(ii) 
of this section:
    (A) The LIBOR contract contains no fallback provisions;
    (B) The LIBOR contract contains fallback provisions that identify 
neither--
    (1) A specific benchmark replacement; nor
    (2) A determining person; or
    (C) The LIBOR contract contains fallback provisions that identify a 
determining person, but the determining person has failed to select a 
benchmark replacement by the earlier of the LIBOR replacement date and 
the latest date for selecting a benchmark replacement according to the 
terms of the LIBOR contract.
    (ii) For purposes of this part, on the LIBOR replacement date, any 
reference in any fallback provisions of a LIBOR contract to the 
following shall be disregarded as if not included in the fallback 
provisions of such LIBOR contract and shall be deemed null and void and 
without any force or effect:
    (A) A benchmark replacement that is based in any way on any LIBOR 
value, except to account for the difference between LIBOR and the 
benchmark replacement; or
    (B) A requirement that a person (other than a benchmark 
administrator) conduct a poll, survey, or inquiries for quotes or 
information concerning interbank lending or deposit rates.
    (iii) Notwithstanding paragraphs (a)(2)(i) through (ii) of this 
section, the term ``covered contract'' does not include any LIBOR 
contract that the parties have agreed in writing shall not be subject 
to the Adjustable Interest Rate (LIBOR) Act.
    (b) Non-covered contracts.
    (1) In general. This regulation does not affect LIBOR contracts 
that are not covered contracts.
    (2) Selection of Board-selected benchmark replacement by 
determining person. Notwithstanding paragraph (b)(1) of this section, a 
determining person may select the Board-selected benchmark replacement 
specified in Sec.  253.4 of this rule as the benchmark replacement for 
a LIBOR contract. Any such selection shall be--
    (i) Irrevocable;
    (ii) Made by the earlier of the LIBOR replacement date and the 
latest date for selecting a benchmark replacement according to the 
terms of the LIBOR contract; and
    (iii) Used in any determinations of the benchmark under or with 
respect to the LIBOR contract occurring on and after the LIBOR 
replacement date.


Sec.  253.4  Board-selected Benchmark Replacements.

    (a) Derivative transactions. On the LIBOR replacement date, a 
covered contract that is a derivative transaction shall use the 
benchmark replacement identified as the ``Fallback Rate (SOFR)'' in the 
ISDA protocol. For clarity, the reference to ``spread relating to U.S. 
dollar LIBOR'' in the definition of ``Fallback Rate (SOFR)'' in the 
ISDA protocol is equal to the applicable tenor spread adjustment 
identified in paragraph (c) of this section.
    (b) All other transactions. On the LIBOR replacement date, a 
covered contract that is not a derivative transaction shall use the 
following benchmark replacements:
    (1) For a covered contract that is not a consumer loan or a covered 
GSE contract--
    (i) In place of overnight LIBOR, the benchmark replacement shall be 
SOFR plus the tenor spread adjustment identified in paragraph (c)(1) of 
this section; and
    (ii) In place of one-, three-, six-, or 12-month tenors of LIBOR, 
the benchmark replacement shall be the corresponding one-, three-, six-
, or 12-month CME Term SOFR plus the applicable tenor spread adjustment 
identified in paragraph (c) of this section.
    (2) For a covered contract that is a consumer loan--
    (i) During the one-year period beginning on the LIBOR replacement 
date:
    (A) In place of overnight LIBOR, the benchmark replacement shall be 
SOFR

[[Page 45281]]

plus an amount that transitions linearly for each business day during 
that period from:
    (1) The difference between SOFR and overnight LIBOR determined as 
of the day immediately before the LIBOR replacement date; to
    (2) The tenor spread adjustment identified in paragraph (c)(1) of 
this section; or
    (B) In place of the one-, three-, six-, or 12-month tenors of 
LIBOR, the benchmark replacement shall be the corresponding one-, 
three-, six-, or 12-month CME Term SOFR plus an amount that transitions 
linearly for each business day during that period from:
    (1) The difference between the relevant CME Term SOFR and the 
relevant LIBOR tenor determined as of the day immediately before the 
LIBOR replacement date; to
    (2) The applicable tenor spread adjustment identified in paragraph 
(c) of this section.
    (ii) On the date one year after the LIBOR replacement date and 
thereafter:
    (A) In place of overnight LIBOR, the benchmark replacement shall be 
SOFR plus the tenor spread adjustment identified in paragraph (c)(1) of 
this section; and
    (B) In place of one-, three-, six-, or 12-month tenors of LIBOR, 
the benchmark replacement shall be the corresponding one-, three-, six-
, or 12-month CME Term SOFR plus the applicable tenor spread adjustment 
identified in paragraph (c) of this section.
    (iii) The rates published or provided by Refinitiv Limited as ``USD 
IBOR Cash Fallbacks'' for ``Consumer'' products shall be deemed equal 
to the rates identified in paragraphs (b)(2)(i) and (ii) of this 
section.
    (3) For a covered contract that is a covered GSE contract--
    (i) In place of overnight LIBOR, the benchmark replacement shall be 
SOFR plus the tenor spread adjustment identified in paragraph (c)(1) of 
this section; and
    (ii) In place of one-, three-, six-, or 12-month tenors of LIBOR, 
the benchmark replacement shall be the 30-day Average SOFR plus the 
applicable tenor spread adjustment identified in paragraph (c) of this 
section.
    (c) Tenor spread adjustments. The following tenor spread 
adjustments shall be included as part of the Board-selected benchmark 
replacements as indicated in paragraphs (a) and (b) of this section:
    (1) 0.00644 percent for overnight LIBOR;
    (2) 0.11448 percent for one-month LIBOR;
    (3) 0.26161 percent for three-month LIBOR;
    (4) 0.42826 percent for six-month LIBOR; and
    (5) 0.71513 percent for 12-month LIBOR.
    (d) Date for determining Board-selected benchmark replacement. For 
purposes of this part, any Board-selected benchmark replacement shall 
be determined as of the day that, under the covered contract, would 
have been used to determine the LIBOR-based rate that is being replaced 
or, if the Board-selected benchmark replacement is not published on the 
day indicated in the covered contract, the most recently available 
publication should be used.


Sec.  253.5  Benchmark Replacement Conforming Changes.

    (a) Benchmark replacement conforming changes.
    (1) The Board may, in its discretion, by regulation or order, 
require any additional technical, administrative, or operational 
changes, alterations, or modifications in LIBOR contracts based on a 
determination that such changes, alterations, or modifications would 
address one or more issues affecting the implementation, 
administration, and calculation of a Board-selected benchmark 
replacement in LIBOR contracts.
    (2) Solely with respect to a LIBOR contract that is not a consumer 
loan, a calculating person may make any additional technical, 
administrative, or operational changes, alterations or modifications 
that, in that person's reasonable judgment, would be necessary or 
appropriate to permit the implementation, administration, and 
calculation of the Board-selected benchmark replacement under or with 
respect to a LIBOR contract after giving due consideration to any 
changes, alterations, or modifications otherwise required by the Board 
in this part or pursuant to paragraph (a)(1) of this section.


Sec.  253.6  Preemption.

    (a) Pursuant to section 107 of the Adjustable Interest Rate (LIBOR) 
Act, this part supersedes any provision of any state or local law, 
statute, rule, regulation, or standard--
    (1) Relating to the selection or use of a benchmark replacement or 
related conforming changes; or
    (2) Expressly limiting the manner of calculating interest, 
including the compounding of interest, as that provision applies to the 
selection or use of a Board-selected benchmark replacement or benchmark 
replacement conforming changes.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2022-15658 Filed 7-27-22; 8:45 am]
BILLING CODE 6210-01-P