than reality at this point. but under all of the cash product consultations put out to date, the first preferred fallback is to that kind of term rate, if such a rate were to be created that was up to iosco standards and endorsed by the arrc. another difference between sofr and libor is that sofr is a “ near risk - free rate ” because 6 / 8 bis central bankers'speeches the underlying repo transactions are secured by treasuries. libor, on the other hand, was based on unsecured transactions and was intended to include the price of bank funding risk. although most of the current uses of libor have no actual need to reflect bank funding risk, that difference does still affect the level of the index, and so will need to be adjusted for in contracts that start out referencing libor and then switch to sofr. there are various technical ways to adjust for both the term difference and the credit difference between sofr and libor. the goal is to create a value - neutral adjustment mechanism that doesn ’ t create winners and losers as libor contracts reset. ideally, the adjustments would also be easily understood, transparent, and based on objective factors, not on discretion. that ’ s a very tall order. this is another area where the ongoing consultations are very important. conclusion change is hard. it ’ s hard to say goodbye to libor when it ’ s been around for so long and is embedded in so many operations and processes that have been in place for decades. for the last several years, change has clearly been coming to the use of libor, but there was a fog of uncertainty about what that change was going to look like, and so the reaction of many firms seemed to be to do nothing except wait and see what happens. now the time has come — i would argue it came a while ago, but in any case it ’ s here now — the time has come for every firm with libor exposure to actively grapple with the risks that are coming your way whether you like it or not. the way forward for the vast majority of libor - based instruments is rapidly becoming clear. it ’ s easy and tempting to justify inaction by criticizing the available solutions as imperfect or as just too hard to do. but inaction at this point in the libor transition is short - sighted and futile and only extends the uncertainty. we need decisive action by everyone in the market to avoid damage to individual

to certain members of the litigation bar, this is not good news for those interested in maintaining financial stability. for example, many contracts state that if a calculation agent cannot find a libor quote for a given day on the usual reuters screen, it will call three large london banks and ask them what their borrowing rate is for that day — basically try to privately replicate libor. imagine if every calculation agent for every transaction tried to do this every time they had to set libor. there would be chaos, especially when those london banks had already decided to get out of the libor - estimating business. why would they even respond? for some types of transactions — floating - rate notes, for example — there is a further fallback : to fix the interest rate at whatever the last libor quote was. this is not a very satisfactory solution to either the issuers or the borrowers who thought they had an instrument that protected them against interest rate risk. other transactions like syndicated loans may revert to prime rate loans — again, not what borrowers may want. and, for derivatives, there simply may be no further fallback. you can imagine the litigation risk when the reference rate for a 20 - year contract disappears and there ’ s no clear path to replace it. now imagine 190 trillion dollars ’ worth of those contracts. this is a defcon 1 litigation event if i ’ ve ever seen one. where are we now? those are the issues that the arrc, the other ibor working groups, and central banks in general have confronted over the last few years. let me turn now to the work at hand. there are two urgent tasks for every market participant with libor exposure. first, if you find yourself in a hole, stop digging. what market participants must do right now is stop writing new contracts on libor and start using sofr or at least another robust alternative. and, especially if you need to keep using libor, make sure your new contracts have strong and workable fallback language. that was one of the original recommendations the various official sector groups made as far back as 2013, but the people writing the contracts don ’ t seem to have been paying attention. as i ’ ll describe in a moment, very soon there will be specific fallback language that represents the consensus best practice to use in each type of u. s. dollar libor - linked 3 / 8 bis central bankers'speeches financial product going forward. the second urgent task is to