NY Adopts Emergency Rules in Transition Away from LIBOR

The State of New York adopted an emergency rule, effective December 29, 2021, making an emergency authorization to use other benchmark indices before the end of 2021 and to enable use of the Secured Overnight Financing Rate (SOFR) as an emergency replacement benchmark index starting on January 1, 2022, in particular instances related to certain variable interest rate loans (see pages 13-15 of the New York State Register).  The New York State Department of Financial Services (Department) expressed concern about potential rate manipulations with the LIBOR benchmark index (currently included as approved benchmark rates under applicable state regulations), noting that LIBOR thus has been deemed an unreliable benchmark from which to calculate interest rates as well as decisions made to phase out LIBOR entirely.  One week and two-month dollar denominated LIBOR rates expired at the end of 2021, while all other dollar denominated LIBOR rates are set to expire in June 2023.  Meanwhile, SOFR has been approved by federal banking regulators as an acceptable LIBOR alternative and is expected to be the main alternative benchmark used by financial institutions in the United States moving forward.  While this emergency rule is set to expire on March 28, 2022, the Department intends to adopt it as a permanent rule and will publish a notice of proposed rulemaking at a future date.

Federal regulators, including the CFPB (see WBK’s recent article here), have recently taken similar action as a result of the discontinuation of the LIBOR index.  WBK previously published a review of the history behind the LIBOR transition and potential issues related to its phase out, which is available here.