LIBOR Transitions to SOFR
Changes to benchmark reference rates announced by the British Financial Conduct Authority in 2017 are underway for FHLB Dallas members and markets affected by London Interbank Offered Rate (LIBOR). LIBOR may no longer be available and/or reliable for financial institutions after 2021. Secured Overnight Financing Rate (SOFR) is the recommended alternative by the Alternative Reference Rate Committee (ARRC). The Federal Reserve Bank of New York publishes SOFR rates daily. Visit this page frequently for resources about SOFR as articles and new information are added, or click the "email sign up" to be notified of updates.
Quarterly Certification Requirements on LIBOR-Indexed Loan Collateral and Interagency Guidance Confirmation
In 2022, FHLB Dallas will continue to require certifications of LIBOR. The purpose of the LIBOR-Linked Mortgage Certification is to monitor FHLB Dallas’ exposure to loan collateral pledged by members that is indexed to LIBOR, which is currently being phased out. In anticipation of the phaseout, loan collateral linked to LIBOR with a maturity date beyond 2021 may be subject to future pricing and/or haircut adjustments.
All institutions currently pledging loans indexed to LIBOR with a maturity date beyond 2021 will be required to provide a quarterly LIBOR-Linked Mortgage Certification to report the aggregate unpaid balance of such loans. Members subject to the quarterly reporting requirement will be notified in writing no later than February 28, 2022.
- First quarter 2022 certification due on May 2, 2022
- Second quarter 2022 certification due on August 1, 2022
- Third quarter 2022 certification due on November 1, 2022
- Fourth quarter 2022 certification due on February 1, 2023
For additional information see member bulletin No. 2022-02.
FHLB Dallas Launches SOFR-Linked Advance
FHLB Dallas is pleased to announce the availability of the new SOFR-Linked advance, a fixed-term, floating-rate, nonamortizing advance that is indexed to SOFR. Read about what it is and how it works in bulletin No. 2019-29, the following white paper or product sheet.
LIBOR Timeline Available
Click here for the latest LIBOR/SOFR transition timeline from ARRC.
ARRC Recommended Best Practices for Completing the Transition from LIBOR
Click here for more information on ARRC recommended best practices.
Informational Articles
ARRC Releases Update on its RFP Process for Selecting a Forward-Looking SOFR Term Rate Administrator
The Alternative Reference Rates Committee (ARRC) announced it selected CME Group as the administrator that it plans to recommend for a forward-looking Secured Overnight Financing Rate (SOFR) term rate, once market indicators for the term rate are met.
ARRC Releases Guide to Published SOFR Averages
The Alternative Reference Rates Committee (ARRC) today released the Guide to Published SOFR Averages in order to provide market participants – and nonfinancial corporates in particular – with key information on the LIBOR transition, including how the published Secured Overnight Finance Rate (SOFR) Averages can be used today and what factors market participants should consider before selecting the alternative rate they use.
ARRC Identifies Market Indicators to Support a Recommendation of a Forward-Looking SOFR Term Rate
The ARRC has published a set of market indicators that it will consider in recommending a forward-looking Secured Overnight Financing Rate (SOFR) term rate. The indicators are designed to measure progress in establishing deep and liquid SOFR derivatives and cash markets—which are essential to a robust and stable term rate.
The market indicators the ARRC will consider in order to recommend a term rate are:
- Continued growth in overnight SOFR-linked derivatives volumes
- Visible progress to deepen SOFR derivatives liquidity, consistent with ARRC best practices:
a. Offering electronic market-making and execution in SOFR swaps and swap spreads
b. Changing the market convention for quoting USD derivative contracts from LIBOR to SOFR
c. Making markets in SOFR-linked interest rate volatility products (including swaptions, caps, and floors) - Visible growth in offerings of cash products, including loans, linked to averages of SOFR, either in advance or in arrears.
ARRC Announces Key Principles for a Forward-Looking SOFR Term Rate
The Alternative Reference Rates Committee (ARRC) today announced key principles for an ARRC-recommended forward-looking Secured Overnight Financing Rate (SOFR) term rate in order to help guide the ARRC as it considers the conditions it believes are necessary to recommend a SOFR term rate.
The key principles for an ARRC-recommended forward-looking SOFR term rate, are that this rate should:
- Meet the ARRC’s criteria for alternative reference rates, similar to SOFR itself;
- Be rooted in a robust and sustainable base of derivatives transactions over time, to ensure that its use as a reference rate is consistent with best practices and the ARRC’s own standards; and,
- Have a limited scope of use, to avoid (i) use that is not in proportion to the depth and transactions in the underlying derivatives market or (ii) use that materially detracts from volumes in the underlying SOFR-linked derivatives transactions that are relied upon to construct a term rate, making the term rate itself unstable over time.
IBA announced that it will consult on when to end the publication of various USD LIBOR tenors. If adopted, these proposed plans would cease the major USD LIBOR tenors in mid-2023 [overnight, 1M, 3M, 6M, 12M], and two little used USD LIBOR settings at the end of 2021 [1 week, 2M]. FCA officials have indicated that they were confident that USD LIBOR “would be published on a representative basis” until end-June 2023, allowing legacy LIBOR contracts to run off.
US banking regulators also said that new LIBOR transactions should stop as soon as practical but no later than 12/31/2021 for all tenors.
View information on transitions in financial instrument reference rates.
LIBOR to SOFR: What Financial Institutions Need to KnowExplore tips to help financial institutions prepare for the change and more in the following article from the latest issue of Dividends.
Alternative Reference Rates CommitteeLearn about the private-market participants group assembled by the Federal Reserve Board and the New York Fed.
FAQs and Other Resources
SOFR Frequently Asked QuestionsRead the most frequently asked questions on the LIBOR and SOFR transition.
LIBOR Transition ChecklistUse this practical checklist published by the Alternative Reference Rates Committee to encourage operational readiness for the LIBOR transition at your institution.
LIBOR/SOFR Transition WebinarView this informative video to learn more about the LIBOR transition.