NEW YORK (Reuters) - Federal Reserve Bank of New York President John Williams (NYSE:WMB) on Monday said the finance industry "must not wait" to stop using the Libor lending benchmark.
U.K. regulators have set a 2021 deadline for financial firms, including banks and investors, to transition away from the London interbank offering rate, or Libor. Globally, Libor is used to price contracts, from home loans to credit cards, worth $300 trillion.
Libor is based on quotes submitted by banks. Its reputation as the market standard was tainted in the wake of rigging scandals by traders, which resulted in billions of dollars in fines for major global banks, effectively signaling the demise of the 50-year-old benchmark.
Regulators are encouraging banks and other financial companies to tie contracts to alternative rates, such as the Secured Overnight Financing Rate (SOFR). Williams said that transition needs to happen now, even as details on how SOFR will be used are worked out.
"We need a mindset shift where firms realize that every new U.S. dollar Libor contract written digs a deeper hole that will be harder to climb out of," he said an industry event.
Fed officials have said they will start to assess banks' Libor transition plans as part of the regular examination process. The Securities and Exchange Commission on Friday also called on financial companies to stop using Libor.