In a detailed 25-page memorandum to U.S. prudential banking regulators,[1] the Alternative Reference Rates Committee detailed concerns regarding the transition from LIBOR to SOFR and possible effects on current U.S. bank regulatory capital and liquidity requirements. In the memorandum, the ARRC makes several preliminary recommendations regarding changes to such requirements, in order to facilitate such transition and avoid unintended disincentives or other adverse regulatory consequences.

Similar matters were addressed in frequently asked questions published by the Bank for International Settlements last June, and in October 2019 letters from the UK Working Group on Sterling Risk-Free Reference Rates to the BIS’s Basel Committee on Banking Supervision and the UK Prudential Regulation Authority.

[1] Discussed in depth in our November 4, 2020, Legal Update, ARRC Provides Recommendations to US Prudential Banking Regulators to Facilitate USD LIBOR Transition to SOFR.