Assemblyman Ken Zebrowski (D-Rockland) and Senator Kevin Thomas (D-Long Island) have announced that their legislation to provide stability in hundreds of billions of dollars of financial contracts as the London Inter-Bank Offered Rate (LIBOR) is permanently discontinued at the end of this year has been signed into law (A164B/S297B).
LIBOR is the most referenced short-term interest rate in the world with an estimated $200 trillion of financial contracts and securities tied to LIBOR. LIBOR's regulator, the U.K. Financial Conduct Authority, has announced that due to potential unsustainable and interest rate manipulation, LIBOR will be permanently discontinued on December 31, 2021. This discontinuance leaves financial markets in an uncertain situation where numerous products reference LIBOR, requiring alternative solutions. Zebrowski and Thomas' law ensures a seamless transition to a new standard for interest rates, preventing billions of dollars in New York financial contracts from being left in free-fall. The legislation minimizes costly and disruptive litigation by providing legal certainty.
To transition away from LIBOR at the end of the year, the Federal Reserve convened the Alternative Reference Rates Committee (ARRC) which recommended the Secured Overnight Financing Rate (SOFR) as a replacement. In anticipation of the LIBOR discontinuance, institutions have begun to transition to SOFR and other benchmark rates in their new contracts or contain fallback language that is used in the event of a LIBOR discontinuance. However, there are existing contracts that reference LIBOR that do not include adequate "fallback language" provisions which apply if the rate is discontinued, like LIBOR will be. Zebrowski and Thomas' law will ensure these contracts aren't thrown into financial chaos by mandating the use of the recommended benchmark replacement.
"LIBOR's discontinuance at the end of this year was a catastrophe waiting to happen for New York State - the financial capital of the world. Our law will ensure that millions of affected financial contracts, everything from mortgages, student loans, credit cards, and business loans, will not face any legal uncertainty or devastating impacts. I am proud to have once again partnered with Senator Thomas on this critical financial measure that will ensure economic stability in our State and thank the Governor for signing it,” said Assemblyman Zebrowski.
"Lending rates for many loans including mortgages, student loans, and credit card rates are tied to LIBOR. This critical legislation will protect New York consumers and businesses from falling into legal limbo when LIBOR is phased out at the end of the year. I thank the Governor for signing this important measure into law and standing up for consumers across New York State,” said Senator Thomas.
The bill will take effect immediately.