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Fed urges U.S. financial industry to accelerate Libor transition

Kitco News

WASHINGTON (Reuters) - The U.S. financial industry must accelerate efforts to move away from the scandal-plagued Libor reference interest rate, Federal Reserve Governor Randal Quarles said on Wednesday, adding that the regulator was scrutinizing banks’ transition plans.

The United States and other key markets have until 2021 to replace the dominant Libor money market rate - the reference rate for more than $350 trillion of assets globally - which is being phased out after a series of manipulation scandals that led to banks being fined billions of dollars.

The global financial industry has been slow to embrace the change, with Reuters reporting in October that U.S. investors are unprepared for the transition to the Secured Overnight Financing Rate (SOFR), which they do not see as a pressing issue.

Speaking at an event hosted by the U.S. derivatives regulator in Washington, Quarles warned that major new markets such as SOFR “do not arise overnight” and can take decades to develop.

“We have only a little over two and a half years until the point at which Libor could end, and the transition needs to continue to accelerate. The private sector needs to take on this responsibility, and we expect you to do so,” said Quarles, who is also chair of the Switzerland-based Financial Stability Board.

Quarles was joined by regulators from the United Kingdom who are visiting Washington this week as part of the spring meetings of the International Monetary Fund and World Bank.

The Fed governor, who also oversees prudential regulation at the central bank, added that the Fed’s supervisory teams are including the transition away from Libor as part of their regular monitoring of large firms.

“The Federal Reserve will expect to see an appropriate level of preparedness at the banks it supervises,” he said.

Reporting by Michelle Price; Editing by Andrea Ricci

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