Bill Overview
Title: Economic Continuity and Stability Act
Description: 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.
Sponsors: Sen. Tester, Jon [D-MT]
Target Audience
Population: People with financial contracts referencing LIBOR
Estimated Size: 50000000
- LIBOR is currently used in a wide array of financial contracts, impacting businesses, financial institutions, and consumers who have loans, mortgages, and financial products linked to LIBOR.
- Globally, many financial contracts in various countries are linked to LIBOR, impacting a significant number of international stakeholders.
- The transitioning impact is largely related to financial sectors and contractual contexts where LIBOR has been used as a benchmark rate.
- The change provides legal certainty and continuity for existing contracts without predetermined fallback provisions, impacting all holders of such financial agreements.
Reasoning
- The Economic Continuity and Stability Act primarily targets individuals and institutions with financial contracts tied to LIBOR, affecting a significant portion of the U.S. population due to the prevalence of LIBOR-based financial products.
- Given the shift from LIBOR could destabilize financial systems without a clear transition plan, the policy aims to stabilize markets by ensuring a consistent and reliable transition to new rates.
- Not all American households have direct engagement with LIBOR-based contracts; however, those in certain sectors, like finance or those with adjustable-rate mortgages, may feel considerable effects.
- The large-scale impact on both institutional and some individual contract holders means that while not everyone will be directly affected, secondary effects like changes in interest costs or financial product availability could be more pervasive.
- Considering the policy's budget constraints, it is likely that most resources will be focused on high-impact areas, such as major financial institutions and products with direct consumer impact, like mortgages.
Simulated Interviews
Investment Banker (New York, NY)
Age: 45 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 5/20
Statement of Opinion:
- The sudden transition from LIBOR could have been disruptive without this policy.
- I believe this policy allows us to move forward with greater clarity and stability in financial planning.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 8 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 7 |
Homeowner (Los Angeles, CA)
Age: 38 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- Uncertainty around my mortgage interest was stressful.
- I'm relieved to know there’s a plan to transition from LIBOR without raising my payments unexpectedly.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 7 | 5 |
| Year 5 | 7 | 5 |
| Year 10 | 7 | 6 |
| Year 20 | 8 | 7 |
Corporate Lawyer (Chicago, IL)
Age: 60 | Gender: other
Wellbeing Before Policy: 8
Duration of Impact: 20.0 years
Commonness: 3/20
Statement of Opinion:
- This policy is essential for providing legal certainty in contract enforcement.
- I'm glad it protects clients from potential litigation issues arising from rate transitions.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 9 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 10 | 9 |
| Year 20 | 9 | 8 |
Graduate Student (Austin, TX)
Age: 29 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 5.0 years
Commonness: 12/20
Statement of Opinion:
- I was concerned about how changing interest rates would affect my debt payments.
- Knowing my loan interest will remain stable is a relief.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 4 |
| Year 2 | 6 | 4 |
| Year 3 | 7 | 4 |
| Year 5 | 7 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 5 |
Small Business Owner (Houston, TX)
Age: 52 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 8/20
Statement of Opinion:
- The transition provides stability for planning my business expenses.
- It's crucial for me to have predictable interest rates.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 7 | 5 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 6 |
Software Engineer (Seattle, WA)
Age: 26 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 0.0 years
Commonness: 20/20
Statement of Opinion:
- I don't think this policy affects me directly.
- Financial stability in the markets is generally good, though.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Real Estate Agent (Miami, FL)
Age: 42 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 10/20
Statement of Opinion:
- I was worried about fluctuating mortgage rates.
- The clarity this policy provides helps my business and personal finances.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 7 | 6 |
Tech Entrepreneur (San Francisco, CA)
Age: 34 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 6/20
Statement of Opinion:
- The policy ensures that my investment terms remain predictable.
- This is critical for maintaining investor confidence.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 9 | 7 |
| Year 3 | 9 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 7 |
Retired (Denver, CO)
Age: 70 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 7/20
Statement of Opinion:
- I'm reassured about the continuity of my income sources.
- This transition makes my retirement plan more stable.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 6 | 5 |
Financial Analyst (Boston, MA)
Age: 50 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 20.0 years
Commonness: 4/20
Statement of Opinion:
- This policy aids in accurate risk assessments for future contracts.
- Having a standard transition rate reduces forecast uncertainties.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 9 | 7 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 7 |
Cost Estimates
Year 1: $500000000 (Low: $400000000, High: $600000000)
Year 2: $100000000 (Low: $80000000, High: $120000000)
Year 3: $50000000 (Low: $40000000, High: $60000000)
Year 5: $20000000 (Low: $15000000, High: $25000000)
Year 10: $10000000 (Low: $8000000, High: $12000000)
Year 100: $500000 (Low: $400000, High: $600000)
Key Considerations
- Legal certainty for contracts transitioning from LIBOR.
- Impact on financial institutions adapting systems to new benchmark rates.
- Potential reductions in systemic risks and litigations related to contract ambiguities.