(Reuters) - The U.S. Federal Reserve said on Thursday it requested public comments on a plan for the New York Federal Reserve and the Office of Financial Research to come up with three reference rates based on U.S. Treasuries-backed repurchase agreements (repos).
These rates are intended as alternatives to the London interbank offered rate (Libor), which is a benchmark for $350 trillion (273.46 trillion pounds)worth of financial products worldwide including $150 trillion in derivatives.
On June 22, the Alternative Reference Rates Committee (ARRC), a group of large international banks, adopted a repo-based benchmark due to concerns that a decline in short-term bank lending since the 2007-2009 financial crisis undermined faith in Libor, and posed risks to the trillions of dollars of derivatives backed by the rate.
Libor has been in regulators’ crosshairs since its credibility was tarnished by a rate-rigging scandal emerging from the financial crisis. About a dozen global banks collectively have paid tens of billions of dollars in fines to settle the matter.
“Because these rates are based on transactions secured by U.S. Treasury securities, they are essentially risk-free, providing a valuable benchmark for market participants to use in financial transactions,” the Fed said in a statement.
The most comprehensive of the three repo rates is the one selected by the ARRC, to be called the Secured Overnight Financing Rate (SOFR). It would include tri-party repo data from the Bank of New York Mellon, and cleared bilateral and GCF repo data from the Depository Trust & Clearing Corp. (DTCC), the Fed said in a statement.
Another rate is the Tri-party General Collateral Rate (TGCR), which would be based only on tri-party repo data from the Bank of New York Mellon.
The third rate, to be called the Broad General Collateral Rate (BGCR), would be based on tri-party repo data from Bank of New York Mellon and cleared GCF repo data from DTCC.
Comments to the proposals on these rates are requested within 60 days of publication in the Federal Register, which is expected shortly, the Fed said.
Reporting by Richard Leong and Karen Brettell; Editing by Chizu Nomiyama