On July 19, 2018, Federal Reserve Board Vice Chairman for Supervision, Randal Quarles, discussed the evolution of reference rates at the Alternative Reference Rates Committee (ARRC) Roundtable at the Federal Reserve Bank of New York. Vice Chairman Quarles noted that the markets that underlie LIBOR have become very thin, providing data that highlights the limited number of LIBOR transactions that occur on a daily basis.
Vice Chairman Quarles emphasized that on a typical day, the volume of three-month LIBOR funding transactions is about $500 million, compared to the estimated $200 trillion of financial securities referencing U.S. Dollar LIBOR. Vice Chairman Quarles contrasted this with the newly established secured overnight financing rate (SOFR), which just three months after its initial production, is already outpacing LIBOR on a daily basis. SOFR is the product of a collaborative effort by the Federal Reserve Bank of New York, the Federal Reserve Board and the U.S. Office of Financial Research, and was created in response to the ARRC's interest in establishing a Treasury repo rate benchmark that would span the widest possible scope of the market. Vice Chairman Quarles further noted that the implementation timetable for SOFR is ahead of schedule, that market participants have begun offering clearing of SOFR overnight index and basis swaps, and that futures markets for SOFR have been introduced on the Chicago Mercantile Exchange.
The full text of Vice Chairman Quarles's remarks is available at: https://www.federalreserve.gov/newsevents/speech/quarles20180719a.htm.
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