H.R. 4616 would establish a process for certain financial contracts that currently reference the London Interbank Offered Rate (LIBOR) to instead reference a replacement benchmark interest rate upon the occurrence of certain events affecting LIBOR. LIBOR is an index rate (or interest rate based on a basket of similar financial transactions that adjusts as economic conditions change) that is commonly used in setting the interest rate for many adjustable-rate consumer financial products. The United Kingdom regulator that oversees the LIBOR panel has indicated that it will cease publication of the U.S. Dollar LIBOR after June 30, 2023. H.R. 4616 would task the Board of Governors of the Federal Reserve System with identifying replacement rates prior to that date based on the Secured Overnight Financing Rate, an index rate based on the costs of borrowing that is collateralized by U.S. Treasury securities.
Using information from the Board of Governors, CBO estimates that enacting H.R. 4616 would not affect the operating costs of the Federal Reserve System. Under current law, the Federal Reserve has convened a working group called the Alternative Reference Rates Committee to help facilitate the transition from LIBOR. CBO estimates that the Federal Reserve will continue to work with other regulators and supervised institutions to prepare for the transition from LIBOR and that enacting the legislation would not change the costs associated with that work.
In addition, some federal contracts for student loans and mortgages currently reference LIBOR, so replacing that rate could have budgetary effects. However, CBO expects that agencies will select the same replacement rates under current law. Therefore, CBO estimates enacting H.R. 4616 would have no effect on federal spending.