The NAFCU Journal September-October 2019 - 9

used for LIBOR. Because these transactions are secured by U.S. Treasurys,
there is negligible credit risk baked
into the rate, which is not the case
with LIBOR. Finally, where LIBOR is
quoted across seven different maturities
spanning from an overnight rate up to
one year, SOFR is based only on a single
(overnight) maturity.

Adoption of SOFR

In spite of the broad agreement
around moving on from LIBOR, actually doing so has proven challenging.
The New York Fed began publishing
SOFR in spring 2018. One year in,
SOFR-issued securities totaled just
over $100 billion, compared to more
than $900 billion of LIBOR issuances
during that time.
The largest inherent challenge is the
lack of term structure. However, some
progress has been made. Recently, two
Federal Reserve economists formed forward-looking rates using SOFR futures.
The hope is that the ARRC will settle

on this or some other alternative as a
preferred term structure for SOFR.

be quoted after that date, but it may no
longer serve as a useful reference.

Preparing for the End

Finally, IT systems may need to be
updated to incorporate a new reference rate and to facilitate the transition
in 2022. Credit unions would also be
advised to begin thinking about how
they will communicate these changes to
their members.

Given the immense uncertainty
around LIBOR after 2021, credit
unions would do well to assume
that it will cease to continue. The
first order of business is to review
existing contracts to determine
exposure. Fallback language for
consumer loans varies, but it generally
allows the noteholder to name a
successor rate. However, many contracts are unclear about whether the
rate spread could be adjusted following
a move to a successor rate. In effect,
this would make the loan rate fixed.
For new adjustable-rate loans, it is
imperative to either use SOFR or some
other reference rate or make sure the
fallback language is clear in the event
LIBOR ceases to continue after 2021.
There should also be clarity around
the trigger for the selection of a new
reference rate. LIBOR may continue to

In July, Federal Reserve Bank of New
York President John Williams expressed
concern over what he sees as a lack of
urgency in adopting SOFR. The month
prior, Fed Vice Chair of Supervision
Randal Quarles said of the move away
from LIBOR that "beginning that
transition now would be consistent with
prudent risk management," and that
there will be supervisory expectation
of progress on that front. As we draw
nearer to 2022, regulatory scrutiny of
LIBOR contracts will only increase.
Curt Long is NAFCU's chief economist and
vice president of research.

Index to Advertisers
AI Oasis
Phone: 888-227-7967
Website: www.ai-oasis.com............................................. 41
Allied Solutions
Phone: 800-826-9384
Website: www.alliedsolutions.net...................................C4
Ascensus
Phone: 800-346-3860
Website: www.ascensus.com............................................ 2
AWS (Amazon)
Website: www.aws.amazon.com/financial-services/.... 39
BFB
Phone: 980-867-7458
Website: www.BFBGallagher.com..................................... 5

CU Direct
Website: www.CUDirect.com........................................... 37
CUNA Mutual Group
Website: www.cunamutual.com/Auto............................ 15
Website: www.cunamutual.com/TruStage..................... 33
Franklin Madison
Website: www.franklin-madison.com.............................C2

NAFCU
Website: www.nafcu.org/forcfos..................................... 35
Website: www.nafcu.org/networks................................. 43
PSCU
Phone: 844-367-7728
Website: www.pscu.com................................................... 29
Q2
Website: www.q2ebanking.com/.....................................C3

Geezeo
Phone: 800-876-3654
Website: www.geezeo.com.............................................. 19
LendKey
Website: www.lendkey.com/lend.................................... 31
Mastercard
Website: www.mastercardservices.com/en................. 23

THE NAFCU JOURNAL  SEPTEMBER-OCTOBER 2019

9


http://www.CUDirect.com http://www.nafcu.org/forcfos http://www.ai-oasis.com/ http://www.nafcu.org/networks http://www.cunamutual.com/Auto http://www.cunamutual.com/TruStage http://www.alliedsolutions.net http://www.pscu.com http://www.franklin-madison.com https://www.q2ebanking.com/ http://www.ascensus.com http://www.geezeo.com http://www.aws.amazon.com/financial-services/ http://www.lendkey.com/lend http://www.BFBGallagher.com https://www.mastercardservices.com/en

The NAFCU Journal September-October 2019

Table of Contents for the Digital Edition of The NAFCU Journal September-October 2019

The NAFCU Journal September-October 2019
Contents
Conferences
From the Chair
Washington and Industry Briefs
The Bottom Line
Access to Money
The Best Indirect Growth Strategy
Big Moments, Bigger Wallet Share
Executive Spotlight
Management Insight
Compliance Central
Inside NAFCU Services
Industry Perspectives
From the President’s Desk
The NAFCU Journal September-October 2019 - The NAFCU Journal September-October 2019
The NAFCU Journal September-October 2019 - Cover2
The NAFCU Journal September-October 2019 - Contents
The NAFCU Journal September-October 2019 - 2
The NAFCU Journal September-October 2019 - Conferences
The NAFCU Journal September-October 2019 - From the Chair
The NAFCU Journal September-October 2019 - 5
The NAFCU Journal September-October 2019 - Washington and Industry Briefs
The NAFCU Journal September-October 2019 - 7
The NAFCU Journal September-October 2019 - The Bottom Line
The NAFCU Journal September-October 2019 - 9
The NAFCU Journal September-October 2019 - Access to Money
The NAFCU Journal September-October 2019 - 11
The NAFCU Journal September-October 2019 - 12
The NAFCU Journal September-October 2019 - 13
The NAFCU Journal September-October 2019 - 14
The NAFCU Journal September-October 2019 - 15
The NAFCU Journal September-October 2019 - The Best Indirect Growth Strategy
The NAFCU Journal September-October 2019 - 17
The NAFCU Journal September-October 2019 - 18
The NAFCU Journal September-October 2019 - 19
The NAFCU Journal September-October 2019 - 20
The NAFCU Journal September-October 2019 - 21
The NAFCU Journal September-October 2019 - 22
The NAFCU Journal September-October 2019 - 23
The NAFCU Journal September-October 2019 - Big Moments, Bigger Wallet Share
The NAFCU Journal September-October 2019 - 25
The NAFCU Journal September-October 2019 - 26
The NAFCU Journal September-October 2019 - 27
The NAFCU Journal September-October 2019 - 28
The NAFCU Journal September-October 2019 - 29
The NAFCU Journal September-October 2019 - Executive Spotlight
The NAFCU Journal September-October 2019 - 31
The NAFCU Journal September-October 2019 - Management Insight
The NAFCU Journal September-October 2019 - 33
The NAFCU Journal September-October 2019 - Compliance Central
The NAFCU Journal September-October 2019 - 35
The NAFCU Journal September-October 2019 - Inside NAFCU Services
The NAFCU Journal September-October 2019 - 37
The NAFCU Journal September-October 2019 - 38
The NAFCU Journal September-October 2019 - 39
The NAFCU Journal September-October 2019 - Industry Perspectives
The NAFCU Journal September-October 2019 - 41
The NAFCU Journal September-October 2019 - 42
The NAFCU Journal September-October 2019 - 43
The NAFCU Journal September-October 2019 - From the President’s Desk
The NAFCU Journal September-October 2019 - Cover3
The NAFCU Journal September-October 2019 - Cover4
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