4 That means that the majority of panelist submissions each day are based solely on “expert judgment.” Although actual transactions underlying LIBOR have diminished, its use as a benchmark has become ubiquitous. The gross notional value of all financial products tied to U.S. dollar LIBOR is around $ trillion—about 10 times U.S. GDP. 5 That includes $ trillion of business loans, $ trillion of floating-rate notes and bonds, another $ trillion of securitizations, and $ trillion 1/8  BIS central bankers' speeches  of consumer loans held by about four million individual retail consumers, including around $ trillion of residential mortgage loans. The remaining 95% of exposures are derivative contracts, which we learned in the financial crisis have consequences for both Wall Street and Main Street. So, every day, the payments on $ trillion of exposures are calculated based on a handful of transactions worth a few hundred million dollars at most. That’s like a very tall, very broad building built on a very narrow foundation. Imagine an upside-down pyramid. It’s not stable, and, as we will discuss shortly, it’s getting more rickety by the day. You don’t want to be standing near it when it comes down. There is, thankfully, a coordinated global effort to address LIBOR’s shortcomings. That work has focused on creating more reliable alternatives. The Financial Stability Board (FSB)6 and the International Organization of Securities Commissions (IOSCO)7 have published roadmaps for reform. Their shared principle is that benchmarks should be based on observable, arms-length transactions rather than estimates.

You may have noticed that I didn’t mention an ARRC consultation on fallbacks for derivatives, even though ARRC’s original purpose was to address benchmark transition in derivative products. That’s because the FSB’s Official Sector Steering Group asked ISDA to do that for derivatives on all of the IBORS. So, alongside the ARRC consultations for cash products, ISDA has been conducting consultations on fallback provisions for IBORS in multiple currencies,20 and has said it will be putting out a U.S. dollar LIBOR consultation in the near future. One of the key questions being discussed is how closely aligned the cash products fallbacks and the derivatives fallbacks will be. The ARRC has also been an essential vehicle for engaging the official sector to address regulatory obstacles to LIBOR transition. For example, replacing fallback language in legacy, uncleared swaps presents a host of issues under the swap margin rules. ARRC’s regulatory working group is actively engaged with the Commodity Futures Trading Commission, the Federal Reserve, and other regulators to address those. On the accounting side, the Financial Accounting Standards Board has ruled that SOFR is eligible for hedge accounting treatment. While all the consulting and coordinating and kvetching has been going on, market participants have gone ahead and begun the transition to actually using SOFR. SOFR swaps are being quoted by dealers and cleared by central counterparties. CME Group and LCH are clearing SOFR-linked swaps and are moving quickly to using SOFR for discounting curves and interest on collateral. CME Group and Intercontinental Exchange have listed SOFR-linked futures.