A Look Ahead: Potential Constitutional Challenges to the Proposed New York Legislation for U.S. Dollar LIBOR Contracts

The London Inter-Bank Offered Rate (LIBOR) is slated for extinction by Dec. 31, 2021, when LIBOR's regulator will cease requiring panel banks to contribute to "the world's most important number." Gelboim v. Bank of Am., 823 F.3d 759, 765 (2d Cir. 2016) (quotation marks and footnote omitted).

Hundreds of thousands of financial contracts (including floating rate securities, bilateral and syndicated loans, interest rate swaps and home mortgages), with an estimated $200 trillion notional value, incorporate U.S. Dollar LIBOR. Many will remain in effect beyond 2021, yet lack robust fallbacks to automatically replace LIBOR after it no longer exists. Some "legacy" instruments have no fallback provisions whatsoever. Others contain impractical fallbacks: for example, reverting to last-quoted LIBOR may transform floating-rate into fixed-rate securities. Amending such "legacy" agreements to replace or backstop LIBOR with another rate, such as the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York (FRBNY), may be impractical, particularly where notes and bonds require all holders' consents to amend.

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