Economic Continuity and Stability Act
This bill provides for the transition of certain financial contracts away from the London Interbank Offered Rate (LIBOR), a reference interest rate based upon the lending terms certain banks offer to each other for various lengths of time. LIBOR is set to be retired in 2023. Various financial contracts reference LIBOR as a benchmark for prevailing interest rates and use LIBOR in calculating certain payments or obligations.
In the event a contract referencing LIBOR does not have a fallback or replacement rate provision in effect when LIBOR is retired, or a replacement rate is not selected by a determining person as defined by the bill, the bill provides for a transition to a replacement rate selected by the Board of Governors of the Federal Reserve System. The bill also provides for conforming changes to these contracts, the continuity and enforceability of these contracts, tax treatment, and protections against liability as a result of such a transition.
[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 3844 Introduced in Senate (IS)]
<DOC>
117th CONGRESS
2d Session
S. 3844
To establish a clear and uniform process, on a nationwide basis, for
replacing the London interbank offered rate in existing contracts, and
for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 15, 2022
Mr. Tester (for himself, Mr. Tillis, Mr. Brown, and Mr. Toomey)
introduced the following bill; which was read twice and referred to the
Committee on Finance
_______________________________________________________________________
A BILL
To establish a clear and uniform process, on a nationwide basis, for
replacing the London interbank offered rate in existing contracts, and
for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Economic Continuity and Stability
Act''.
SEC. 2. FINDINGS AND PURPOSE.
(a) Findings.--Congress finds that--
(1) LIBOR is used as a benchmark rate in more than
$200,000,000,000,000 worth of contracts worldwide;
(2) a significant number of existing contracts that
reference LIBOR do not provide for the use of a clearly defined
or practicable replacement benchmark rate when LIBOR is
discontinued; and
(3) the cessation or nonrepresentativeness of LIBOR could
result in disruptive litigation related to existing contracts
that do not provide for the use of a clearly defined or
practicable replacement benchmark rate.
(b) Purpose.--It is the purpose of this Act--
(1) to establish a clear and uniform process, on a
nationwide basis, for replacing LIBOR in existing contracts the
terms of which do not provide for the use of a clearly defined
or practicable replacement benchmark rate, without affecting
the ability of parties to use any appropriate benchmark rate in
new contracts;
(2) to preclude litigation related to existing contracts
the terms of which do not provide for the use of a clearly
defined or practicable replacement benchmark rate;
(3) to allow existing contracts that reference LIBOR but
provide for the use of a clearly defined and practicable
replacement rate, to operate according to their terms;
(4) to provide that modifications of existing contracts
pursuant to this Act do not result in recognition of gain or
loss for Federal income tax purposes;
(5) to provide authority to the Secretary of the Treasury
to provide clear guidance regarding the Federal income tax
consequences for taxpayers with respect to IBOR contracts
transitioning away from IBOR to an IBOR Benchmark Replacement;
and
(6) to address LIBOR references in Federal law.
SEC. 3. DEFINITIONS.
In this Act:
(1) Benchmark.--The term ``benchmark'' means an index of
interest rates or dividend rates that is used, in whole or in
part, as the basis of or as a reference for calculating or
determining any valuation, payment, or other measurement.
(2) Benchmark administrator.--The term ``benchmark
administrator'' means a person that publishes a benchmark for
use by third parties.
(3) Benchmark replacement.--The term ``benchmark
replacement'' means a benchmark, or an interest rate or
dividend rate (which may or may not be based in whole or in
part on a prior setting of LIBOR), to replace LIBOR or any
interest rate or dividend rate based on LIBOR, whether on a
temporary, permanent, or indefinite basis, under or with
respect to a LIBOR contract.
(4) Benchmark replacement conforming changes.--The term
``benchmark replacement conforming changes'' means any
technical, administrative, or operational changes, alterations,
or modifications that--
(A) the Board determines, in its discretion, would
address 1 or more issues affecting the implementation,
administration, and calculation of the Board-selected
benchmark replacement in LIBOR contracts; or
(B) solely with respect to a LIBOR contract that is
not a consumer loan, in the reasonable judgment of a
calculating person, are otherwise necessary or
appropriate to permit the implementation,
administration, and calculation of the Board-selected
benchmark replacement under or with respect to a LIBOR
contract after giving due consideration to any
benchmark replacement conforming changes under
subparagraph (A).
(5) Board.--The term ``Board'' means the Board of Governors
of the Federal Reserve System.
(6) Board-selected benchmark replacement.--The term
``Board-selected benchmark replacement'' means a benchmark
replacement identified by the Board that is based on SOFR,
including any tenor spread adjustment pursuant to section 4(e).
(7) Calculating person.--The term ``calculating person''
means, with respect to any LIBOR contract, any person,
including the determining person, responsible for calculating
or determining any valuation, payment, or other measurement
based on a benchmark.
(8) Consumer; credit.--The terms ``consumer'' and
``credit'' have the meanings given the terms in section 103 of
the Truth in Lending Act (15 U.S.C. 1602).
(9) Consumer loan.--The term ``consumer loan'' means a
consumer credit transaction.
(10) Determining person.--The term ``determining person''
means, with respect to any LIBOR contract, any person with the
authority, right, or obligation, including on a temporary basis
(as identified by the LIBOR contract or by the governing law of
the LIBOR contract, as appropriate) to determine a benchmark
replacement.
(11) Fallback provisions.--The term ``fallback provisions''
means terms in a LIBOR contract for determining a benchmark
replacement, including any terms relating to the date on which
the benchmark replacement becomes effective.
(12) IBOR.--The term ``IBOR'' means LIBOR, any tenor of
non-U.S. dollar currency rates formerly known as the London
interbank offered rate as administered by ICE Benchmark
Administration Limited (or any predecessor or successor
administrator thereof), and any other interbank offered rates
that are expected to cease.
(13) IBOR benchmark replacement.--The term ``IBOR benchmark
replacement'' means a benchmark, or an interest rate or
dividend rate (which may or may not be based in whole or in
part on a prior setting of an IBOR), to replace an IBOR or any
interest rate or dividend rate based on an IBOR, whether on a
temporary, permanent, or indefinite basis, under or with
respect to an IBOR contract.
(14) IBOR contract.--The term ``IBOR contract'' means any
contract, agreement, indenture, organizational document,
guarantee, mortgage, deed of trust, lease, security (whether
representing debt or equity, including any interest in a
corporation, a partnership, or a limited liability company),
instrument, or other obligation or asset that, by its terms,
continues in any way to use an IBOR as a benchmark.
(15) LIBOR.--The term ``LIBOR''--
(A) means the overnight and 1-, 3-, 6-, and 12-
month tenors of U.S. dollar LIBOR (formerly known as
the London interbank offered rate) as administered by
ICE Benchmark Administration Limited (or any
predecessor or successor administrator thereof); and
(B) does not include the 1-week or 2-month tenors
of U.S. dollar LIBOR.
(16) LIBOR contract.--The term ``LIBOR contract'' means any
contract, agreement, indenture, organizational document,
guarantee, mortgage, deed of trust, lease, security (whether
representing debt or equity, including any interest in a
corporation, a partnership, or a limited liability company),
instrument, or other obligation or asset that, by its terms,
uses LIBOR as a benchmark.
(17) LIBOR replacement date.--The term ``LIBOR replacement
date'' means the first London banking day after June 30, 2023,
unless the Board determines that any LIBOR tenor will cease to
be published or cease to be representative on a different date.
(18) Security.--The term ``security'' has the meaning given
the term in section 2(a) of the Securities Act of 1933 (15
U.S.C. 77b(a)).
(19) SOFR.--The term ``SOFR'' means the Secured Overnight
Financing Rate published by the Federal Reserve Bank of New
York (or a successor administrator).
(20) Tenor spread adjustment.--The term ``tenor spread
adjustment'' means--
(A) 0.00644 percent for overnight LIBOR;
(B) 0.11448 percent for 1-month LIBOR;
(C) 0.26161 percent for 3-month LIBOR;
(D) 0.42826 percent for 6-month LIBOR; and
(E) 0.71513 percent for 12-month LIBOR.
SEC. 4. LIBOR CONTRACTS.
(a) In General.--On the LIBOR replacement date, the Board-selected
benchmark replacement shall be the benchmark replacement for any LIBOR
contract that, after giving any effect to subsection (b)--
(1) contains no fallback provisions; or
(2) contains fallback provisions that identify neither--
(A) a specific benchmark replacement; nor
(B) a determining person.
(b) Fallback Provisions.--On the LIBOR replacement date, any
reference in the fallback provisions of a LIBOR contract to--
(1) a benchmark replacement that is based in any way on any
LIBOR value, except to account for the difference between LIBOR
and the benchmark replacement; or
(2) a requirement that a person (other than a benchmark
administrator) conduct a poll, survey, or inquiries for quotes
or information concerning interbank lending or deposit rates,
shall be disregarded as if not included in the fallback provisions of
such LIBOR contract and shall be deemed null and void and without any
force or effect.
(c) Authority of Determining Person.--
(1) In general.--Subject to subsection (f)(2), a
determining person may select the Board-selected benchmark
replacement as the benchmark replacement.
(2) Selection.--Any selection by a determining person of
the Board-selected benchmark replacement pursuant to paragraph
(1) shall be--
(A) irrevocable;
(B) made by the earlier of the LIBOR replacement
date and the latest date for selecting a benchmark
replacement according to the terms of the LIBOR
contract; and
(C) used in any determinations of the benchmark
under or with respect to the LIBOR contract occurring
on and after the LIBOR replacement date.
(3) No selection.--If a determining person does not select
a benchmark replacement by the date specified in paragraph
(2)(B), the Board-selected benchmark replacement, on and after
the LIBOR replacement date, shall be the benchmark replacement
for the LIBOR contract.
(d) Conforming Changes.--
(1) In general.--If the Board-selected benchmark
replacement becomes the benchmark replacement for a LIBOR
contract pursuant to subsection (a) or (c), all benchmark
replacement conforming changes shall become an integral part of
the LIBOR contract.
(2) No consent required.--A calculating person shall not be
required to obtain consent from any other person prior to the
adoption of benchmark replacement conforming changes.
(e) Adjustment by Board.--
(1) In general.--Except as provided in paragraph (2), on
the LIBOR replacement date, the Board shall adjust the Board-
selected benchmark replacement for each category of LIBOR
contract that the Board may identify to include the relevant
tenor spread adjustment.
(2) Consumer loans.--For LIBOR contracts that are consumer
loans, the Board shall adjust the Board-selected benchmark
replacement as follows:
(A) During the 1-year period beginning on the LIBOR
replacement date, incorporate an amount, to be
determined for any business day during that period,
that transitions linearly from the difference between
the Board-selected benchmark replacement and the
corresponding LIBOR tenor determined as of the day
immediately before the LIBOR replacement date to the
relevant tenor spread adjustment.
(B) On and after the date that is 1 year after the
LIBOR replacement date, incorporate the relevant tenor
spread adjustment.
(f) Rule of Construction.--Nothing in this Act may be construed to
alter or impair--
(1) any written agreement specifying that a LIBOR contract
shall not be subject to this Act;
(2) except as provided in subsection (b), any LIBOR
contract that contains fallback provisions that identify a
benchmark replacement that is not based in any way on any LIBOR
value (including the prime rate or the effective Federal funds
rate);
(3) except as provided in subsection (b) or (c)(3), any
LIBOR contract subject to subsection (c)(1) as to which a
determining person does not elect to use a Board-selected
benchmark replacement pursuant to that subsection;
(4) the application to a Board-selected benchmark
replacement of any cap, floor, modifier, or spread adjustment
to which LIBOR had been subject pursuant to the terms of a
LIBOR contract;
(5) any provision of Federal consumer financial law that--
(A) requires creditors to notify borrowers
regarding a change-in-terms; or
(B) governs the reevaluation of rate increases on
credit card accounts under open-ended (not home-
secured) consumer credit plans; or
(6) except as provided in section 5(c), the rights or
obligations of any person, or the authorities of any agency,
under Federal consumer financial law, as defined in section
1002 of the Consumer Financial Protection Act of 2010 (12
U.S.C. 5481).
SEC. 5. CONTINUITY OF CONTRACT AND SAFE HARBOR.
(a) In General.--A Board-selected benchmark replacement and the
selection or use of a Board-selected benchmark replacement as a
benchmark replacement under or with respect to a LIBOR contract, and
any benchmark replacement conforming changes, shall constitute--
(1) a commercially reasonable replacement for and a
commercially substantial equivalent to LIBOR;
(2) a reasonable, comparable, or analogous rate, index, or
term for LIBOR;
(3) a replacement that is based on a methodology or
information that is similar or comparable to LIBOR;
(4) substantial performance by any person of any right or
obligation relating to or based on LIBOR; and
(5) a replacement that has historical fluctuations that are
substantially similar to those of LIBOR for purposes of the
Truth in Lending Act (15 U.S.C. 1601 note) and regulations
promulgated under that Act.
(b) No Impairment.--Neither the selection or use of a Board-
selected benchmark replacement as a benchmark replacement nor the
determination, implementation, or performance of benchmark replacement
conforming changes under section 4 may--
(1) be deemed to impair or affect the right of any person
to receive a payment, or to affect the amount or timing of such
payment, under any LIBOR contract; or
(2) have the effect of--
(A) discharging or excusing performance under any
LIBOR contract for any reason, claim, or defense
(including any force majeure or other provision in any
LIBOR contract);
(B) giving any person the right to unilaterally
terminate or suspend performance under any LIBOR
contract;
(C) constituting a breach of any LIBOR contract; or
(D) voiding or nullifying any LIBOR contract.
(c) Safe Harbor.--No person shall be subject to any claim or cause
of action in law or equity or request for equitable relief, or have
liability for damages, arising out of--
(1) the selection or use of a Board-selected benchmark
replacement;
(2) the implementation of benchmark replacement conforming
changes; or
(3) with respect to a LIBOR contract that is not a consumer
loan, the determination of benchmark replacement conforming
changes,
in each case after giving effect to the provisions of section 4;
provided, however, that in each case any person (including a
calculating person) shall remain subject to the terms of a LIBOR
contract that are not affected by this Act and any existing legal,
regulatory, or contractual obligations to correct servicing or other
ministerial errors under or with respect to a LIBOR contract.
(d) Selection.--The selection or use of a Board-selected benchmark
replacement or the determination, implementation, or performance of
benchmark replacement conforming changes under section 4 shall not be
deemed to--
(1) be an amendment or modification of any LIBOR contract;
or
(2) prejudice, impair, or affect the rights, interests, or
obligations of any person under or with respect to any LIBOR
contract.
(e) No Negative Inference.--Except as provided in subsection (a),
(b), or (c)(1) of section 4, nothing in this Act may be construed to
create any negative inference or negative presumption regarding the
validity or enforceability of--
(1) any benchmark replacement (including any method for
calculating, determining, or implementing an adjustment to the
benchmark replacement to account for any historical differences
between LIBOR and the benchmark replacement) that is not a
Board-selected benchmark replacement; or
(2) any changes, alterations, or modifications to or with
respect to a LIBOR contract that are not benchmark replacement
conforming changes.
SEC. 6. TAX TREATMENT AND TAX REGULATIONS FOR LIBOR TRANSITION.
(a) In General.--None of--
(1) the selection or use of a Board-selected benchmark
replacement as a benchmark replacement,
(2) the determination, implementation, or performance of
benchmark replacement conforming changes, or
(3) the application to any LIBOR contract of, or the
agreement by parties thereto to terms consistent with, section
4,
shall be treated as a sale, exchange, or other disposition of property
for purposes of section 1001 of the Internal Revenue Code of 1986.
(b) Guidance.--The Secretary of the Treasury (or the Secretary's
delegate) shall issue such regulations or other guidance as may be
necessary or appropriate to carry out subsection (a) and address the
Federal income tax consequences for taxpayers with respect to IBOR
contracts transitioning away from IBOR to an IBOR benchmark
replacement.
SEC. 7. BENCHMARK FOR LOANS.
(a) Definitions.--In this section:
(1) Bank.--The term ``bank'' means an institution subject
to examination by a Federal financial institutions regulatory
agency.
(2) Covered action.--The term ``covered action'' means--
(A) the initiation by a Federal supervisory agency
of an enforcement action, including the issuance of a
cease-and-desist order; or
(B) the issuance by a Federal supervisory agency of
a matter requiring attention, a matter requiring
immediate attention; or a matter requiring board
attention resulting from a supervisory activity
conducted by the Federal supervisory agency.
(3) Federal financial institutions regulatory agency.--The
term ``Federal financial institutions regulatory agencies'' has
the meaning given the term in section 1003 of the Federal
Financial Institutions Examination Council Act of 1978 (12
U.S.C. 3302).
(4) Federal supervisory agency.--The term ``Federal
supervisory agency'' means an agency listed in subparagraphs
(A) through (H) of section 1101(7) of the Right to Financial
Privacy Act of 1978 (12 U.S.C. 3401(7)).
(5) Non-IBOR loan.--The term ``non-IBOR loan'' means any
loan that, by its terms, does not use in any way LIBOR, any
tenor of non-U.S. dollar currency rates formerly known as the
London interbank offered rate as administered by ICE Benchmark
Administration Limited (or any predecessor or successor
administrator thereof), and any other interbank offered rates
that are expected to cease, as a benchmark.
(b) Benchmarks Used by Banks.--With respect to a benchmark used by
a bank--
(1) the bank, in any non-IBOR loan made before, on, or
after the date of enactment of this Act, may use any benchmark,
including a benchmark that is not SOFR, that the bank
determines to be appropriate for the funding model of the bank;
the needs of the customers of the bank; and the products, risk
profile, risk management capabilities, and operational
capabilities of the bank; provided, however, that the use of
any benchmark shall remain subject to the terms of the non-IBOR
loan, and applicable law; and
(2) no Federal supervisory agency may take any covered
action against the bank solely because that benchmark is not
SOFR.
SEC. 8. PREEMPTION.
This Act, and regulations promulgated under this Act, shall
supersede any provision of any State or local law, statute, rule,
regulation, or standard--
(1) relating to the selection or use of a benchmark
replacement or related conforming changes; or
(2) expressly limiting the manner of calculating interest,
including the compounding of interest, as that provision
applies to the selection or use of a Board-selected benchmark
replacement or benchmark replacement conforming changes.
SEC. 9. TRUST INDENTURE ACT OF 1939.
Section 316(b) of the Trust Indenture Act of 1939 (15 U.S.C.
77ppp(b)) is amended--
(1) by striking ``, except as'' and inserting ``, except--
``(1) as'';
(2) in paragraph (1), as so designated, by striking ``(a),
and except that'' and inserting ``(a);
``(2) that'';
(3) in paragraph (2), as so designated, by striking the
period at the end and inserting ``; and''; and
(4) by adding at the end the following:
``(3) that the right of any holder of any indenture
security to receive payment of the principal of and interest on
such indenture security shall not be deemed to be impaired or
affected by any change occurring by the application of section
4 of the Economic Continuity and Stability Act to any indenture
security.''.
SEC. 10. AMENDMENT TO THE HIGHER EDUCATION ACT OF 1965.
Section 438(b)(2)(I) of the Higher Education Act of 1965 (20 U.S.C.
1087-1(b)(2)(I)) is amended by adding at the end the following:
``(viii) Revised calculation rule to
address instances where 1-month usd libor
ceases or is non-representative.--
``(I) Substitute reference index.--
The provisions of this clause apply to
loans for which the special allowance
payment would otherwise be calculated
pursuant to clause (vii).
``(II) Calculation based on sofr.--
For loans described in subclause (III)
or (IV), the special allowance payment
described in this subclause shall be
substituted for the payment provided
under clause (vii). For each calendar
quarter, the formula for computing the
special allowance that would otherwise
apply under clause (vii) shall be
revised by substituting `of the quotes
of the 30-day Average Secured Overnight
Financing Rate (SOFR) in effect for
each of the days in such quarter as
published by the Federal Reserve Bank
of New York (or a successor
administrator), adjusted daily by
adding the tenor spread adjustment, as
that term is defined in the Economic
Continuity and Stability Act, for 1-
month LIBOR contracts of 0.11448
percent' for `of the 1-month London
Inter Bank Offered Rate (LIBOR) for
United States dollars in effect for
each of the days in such quarter as
compiled and released by the British
Bankers Association'. The special
allowance calculation for loans subject
to clause (vii) shall otherwise remain
in effect.
``(III) Loans eligible for sofr-
based calculation.--Except as provided
in subclause (IV), the special
allowance payment calculated under
subclause (II) shall apply to all loans
for which the holder (or, if the holder
acts as an eligible lender trustee for
the beneficial owner of the loan, the
beneficial owner of the loan) at any
time after the effective date of this
clause notifies the Secretary that the
holder or beneficial owner
affirmatively and permanently elects to
waive all contractual, statutory, or
other legal rights to a special
allowance paid under clause (vii) or to
the special allowance paid pursuant to
any other formula that was previously
in effect with respect to such loan,
and accepts the rate described in
subclause (II). Any such waiver shall
apply to all loans then held, or to be
held from time to time, by such holder
or beneficial owner; provided that, due
to the need to obtain the approval of,
demonstrated to the satisfaction of the
Secretary--
``(aa) one or more third
parties with a legal or
beneficial interest in loans
eligible for the SOFR-based
calculation; or
``(bb) a nationally
recognized rating organization
assigning a rating to a
financing secured by loans
otherwise eligible for the
SOFR-based calculation,
the holder of the loan (or, if the
holder acts as an eligible lender
trustee for the beneficial owner of the
loan, the beneficial owner of the loan)
may elect to apply the rate described
in subclause (II) to specified loan
portfolios established for financing
purposes by separate notices with
different effective dates. The special
allowance rate based on SOFR shall be
effective with respect to a portfolio
as of the first day of the calendar
quarter following the applicable
effective date of the waiver received
by the Secretary from the holder or
beneficial owner and shall permanently
and irrevocably continue for all
subsequent quarters.
``(IV) Fallback provisions.--
``(aa) In the event that a
holder or beneficial owner has
not elected to waive its rights
to a special allowance payment
under clause (vii) with respect
to a portfolio with an
effective date of the waiver
prior to the first of--
``(AA) the date on
which the ICE Benchmark
Administration (`IBA')
has permanently or
indefinitely stopped
providing the 1-month
United States Dollar
LIBOR (`1-month USD
LIBOR') to the general
public;
``(BB) the
effective date of an
official public
statement by the IBA or
its regulator that the
1-month USD LIBOR is no
longer reliable or no
longer representative;
or
``(CC) the LIBOR
replacement date, as
defined in section 3 of
the Economic Continuity
and Stability Act,
the special allowance rate
calculation as described in
subclause (II) shall, by
operation of law, apply to all
loans in such portfolio.
``(bb) In such event--
``(AA) the last
determined rate of
special allowance based
on 1-month USD LIBOR
will continue to apply
until the end of the
then current calendar
quarter; and
``(BB) the special
allowance rate
calculation as
described in subclause
(II) shall become
effective as of the
first day of the
following calendar
quarter and remain in
effect for all
subsequent calendar
quarters.''.
SEC. 11. RULEMAKING.
Not later than 180 days after the date of enactment of this Act,
the Board shall promulgate regulations to carry out this Act.
<all>
Introduced in Senate
Read twice and referred to the Committee on Finance.
Llama 3.2 · runs locally in your browser
Ask anything about this bill. The AI reads the full text to answer.
Enter to send · Shift+Enter for new line