Fed rule sets SOFR as LIBOR replacement

The Federal Reserve Board adopted a rule that will officially set the Secured Overnight Financing Rate (SOFR) as the fallback benchmark rate in financial contracts that reference the expiring London Interbank Offered Rate (LIBOR).

The Fed’s rule, adopted Friday, will take effect 30 days after publication in the Federal Register. It will apply to affected financial contracts after June 30, 2023, when U.S. dollar LIBOR panels end.

SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Congress in December 2021 enacted the LIBOR Act, which ordered SOFR replace overnight, one-month, three-month, six-month, and 12-month LIBOR benchmark rate in contracts subject to the act. The law also stipulated LIBOR contracts adopting a benchmark rate selected by the Fed will not be interrupted or terminated following LIBOR’s replacement.