Bloomberg
Fed Dials Up Pressure on Wall Street to Ditch Discredited Libor
(Bloomberg) -- The Federal Reserve is intensifying its scrutiny of banks’ efforts to shed their reliance on the London interbank offered rate, and has begun compiling more detailed evidence on their progress, according to multiple people with knowledge of the matter.Banks are being asked for specifics on their Libor exposure, their plans for amending contracts tied to the benchmark, and the fallback provisions being utilized to facilitate the shift to alternative rates, said the people, who requested not to be named given the sensitivity of the inquiries. The move is viewed partly as way for the Fed to telegraph the urgency of the transition, but also as a prelude to concrete supervisory action in the months ahead.Banks have less than a year before the Fed has indicated it will stop allowing them to enter into new contracts pegged to Libor, a bedrock of the financial system being phased out by global policy makers due to a lack of underlying trading and following a high-profile rigging scandal. Still, the rate -- which underpins trillions of dollar of assets -- has proven difficult to dislodge. Officials last year indicated they would delay the end of certain tenors by 18 months amid concerns over financial stability stemming in part from the industry’s lack of preparation.A spokesperson for the Fed declined to comment, while banks are prevented from discussing confidential supervisory communications.“We can expect the regulators to be identifying gaps in banks’ programs,” said Graham Broyd, founder of consultancy Broyd Partners LLC and a former member of the Alternative Reference Rates Committee, the Fed-backed body guiding the U.S. Libor transition. “Banks will need to have clear plans and actions for delivery later in the year, without which there are expected to be regulatory consequences.”Banks have received questions and requests for data in recent months both in writing and via meetings with Fed representatives, according to some of the people familiar. The inquires are targeted toward Wall Street and regional lenders, rather than smaller community banks.One banking executive said broad-brush reports on transition progress don’t cut it anymore, and officials are asking for more information with every inquiry. An executive at another bank downplayed the significance of the shift, saying global regulators have been asking about Libor exposures for a while.While the scope of the requests is new, the magnitude of the challenge facing the financial sector has long been anticipated.Speaking in 2018 about the broader industry’s efforts, Beth Hammack, global treasurer at Goldman Sachs Group Inc., noted that “it’s going to be a really painful transition to get there as there are so many people and so many products that are referencing this rate -- it’s a such a foundational part of our market.” She added that “the impact is going to be hopefully an improvement in safety and soundness.”Officials are also asking banks for details on when their Libor-based contracts mature, some of the people said.Only a fraction of the $200 trillion derivatives market has shifted to the Secured Overnight Financing Rate, dollar Libor’s anointed successor, while hundreds of billions of dollars of the most troublesome floating-rate notes and securitizations may be unable to transition at all.The probing comes after the Fed warned banks in November that entering into new Libor-linked deals after 2021 would pose significant risks, and that it would examine their practices accordingly. Policy makers also said that a failure to prepare for Libor’s end could undermine financial stability.“Regulators have periodically asked for information on the Libor transition plans for major banks, but requests for data on particular types of Libor exposures are taking on greater specificity,” said Mark Chorazak, a partner at law firm Shearman & Sterling LLP in New York. “The Federal Reserve is becoming keenly interested in quarter-to-quarter progress at particular institutions.”The Fed could potentially issue MRAs or MRIAs -- matters requiring attention or matters requiring immediate attention -- depending on the responses to its inquiries. These generally require a board-level reply including a timeline for corrective action. Investigations or enforcement action follow if the Fed isn’t satisfied.Wake-Up CallThe Federal Financial Institutions Examination Council, an interagency group of regulators, had previously said that supervisory efforts around Libor would increase in 2020 and 2021, particularly for firms with significant exposures or less developed transition processes.Still, the inquiries may serve as a wake-up call for banks, particularly some regional lenders, after what was viewed as a major concession by the Fed to delay the planned phase out of certain dollar Libor maturities until mid-2023 to allow firms to address tough legacy contracts.“The enhanced regulatory oversight can pose real challenges to smaller banks,” said Bradley Ziff, an operating partner at management consultancy Sia Partners. “For institutions which have not yet made meaningful efforts towards the transition, the need to upgrade systems, consolidate contracts or collect data can be difficult at this point.”A representative for the ARRC, which counts banks, asset managers, insurers and industry trade organizations as members, declined to comment.“The transition away from Libor is a major undertaking that banks are preparing for and taking seriously,” said Ian McKendry, a spokesperson for the American Bankers Association. With trillions of dollars “in contracts outstanding that don’t have robust fallback language, it’s not surprising that regulators are asking financial institutions about their plans.”Major banks should have little issue addressing the Fed’s more pointed inquires, according to Anne Beaumont, a partner at law firm Friedman Kaplan Seiler & Adelman LLP.“Banks have been leading the charge in preparation,” Beaumont said. “They’re expending a lot of resources on this and have seen this coming for a long time. If they can’t respond in a substantial way at this point that would be a red flag.”(Updates with details on shift to SOFR in 11th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
"diary" - Google News
March 02, 2021 at 07:25PM
https://ift.tt/308LOdq
Perfect Diary’s Yatsen to Buy Eve Lom From Manzanita Capital - Yahoo Finance
"diary" - Google News
https://ift.tt/2VTijey
https://ift.tt/2xwebYA
Bagikan Berita Ini
0 Response to "Perfect Diary’s Yatsen to Buy Eve Lom From Manzanita Capital - Yahoo Finance"
Post a Comment