Dive Brief:
- The Financial Accounting Standards Board on Wednesday took a step toward removing references to the discontinued London Interbank Offered Rate swap rate from its codification — the digitized authoritative source of generally accepted accounting principles — and replacing them with the Secured Overnight Financing Rate-based rate benchmark.
- The U.S. accounting standards setter staff recommended the change in a Wednesday board meeting, noting that maintaining the more than 100 references to LIBOR make the codification’s guidance less useful.
- Board members, some referring to it as a “housekeeping” project that won’t change accounting practices, voted for a proposed standards update to be drafted with a comparatively short 60-day comment period. “The codification should be updated accordingly for references to LIBOR so [it] is reflective of changes already being captured in contracts in the global capital markets,” Board Member Joyce Joseph said during the meeting.
Dive Insight
LIBOR, once a vaunted floating interest rate benchmark for trillions of dollars in debt, has been phased out in recent years after being tarnished by a rate manipulation scandal. U.S. dollar LIBOR rates were discontinued after June of 2023, according to a JPMorgan report around that time.
Banks effectively stopped making new LIBOR loans in 2022 as they largely transitioned to using SOFR, CFO Dive previously reported. At this week’s meeting the board considered replacing the older benchmark references with generic rates or a mix but ultimately backed going with SOFR as the sole replacement.
It’s the most “expeditious and straightforward” option, Board Member Marsha Hunt said.
FASB has wrestled with the LIBOR phase-out before. In a 2018 accounting standards update, it included the SOFR overnight index swap rate as a benchmark for hedge accounting purposes.
The standards update noted that the Federal Reserve Board and the Federal Reserve Bank of New York were concerned about “the sustainability of LIBOR” and requested that the OIS rate tied to SOFR be considered eligible to be applied to hedge accounting, according to the Derivatives and Hedging (Topic 815) standards update.
