market know the full scale of the risks this creates for the financial system. libor isn ’ t just the rate that banks use to borrow from one another — it ’ s also the underlying rate on numerous derivatives and loan contracts. the $ 200 trillion figure i mentioned earlier is the approximate total exposure to u. s. dollar libor. that ’ s about 10 times u. s. gross domestic product. none of what i am telling you is new, but it ’ s worth reminding ourselves just how significant reference rates are to the functioning of financial markets, both in the united states and around the world. there ’ s broad recognition that exposure to libor is a leading risk to financial stability. 2 we need to treat it as such. 1 / 3 bis central bankers'speeches progress has been made and, to date, significant progress has been made, moving us toward a safe and sound reference rates regime. what ’ s more, there ’ s been notable momentum in recent weeks. but first, let ’ s take a look back at some of the more significant accomplishments. back in 2014, the new york fed and the board of governors convened the alternative reference rates committee ( arrc ), which is made up of market participants. in an important milestone, the arrc selected the secured overnight financing rate ( sofr ) as its preferred alternative to u. s. dollar libor in 2017. since april 2018, the new york fed has produced sofr every day. it is based on much higher volumes than libor, and compliant with the principles for financial benchmarks set forth by the international organization of securities commissions ( iosco ). 3 sofr is based on transactions — not judgment — making it much more robust. all of this points to the good work that can happen when the private and official sectors come together. now, there has been some criticism leveled at sofr, most notably the lack of a term rate, and not enough liquidity in the market. but liquidity has begun to develop in derivatives and cash markets. and, earlier this year federal reserve board economists published research demonstrating how forward - looking term rates can be derived from sofr futures and swaps markets. however, we are still some time off from a point at which a robust, iosco - compliant term rate can be created, and use of such a term rate should be limited to certain segments of the loan market and to fallbacks for new contracts. i want to emphasize that the industry must not

##bor, and a framework for use of sofr in new arms. much progress has been made, but there is still much to do. the arrc transition plan is well underway, but we need to see certain developments in the u. s. financial industry for a smooth transition. milestones for the future include deeper liquidity in sofr derivatives markets, greater issuance of sofr - linked cash products, a reduction in the issuance of libor - linked cash products, and the closing out of legacy positions on cash products, to name a few. these all require the partnership and perseverance of the market. 2022 is just around the corner 2022 feels like it ’ s a long way away, but believe it or not 901 days can disappear, almost in an instant. and i don ’ t always sense urgency among market participants on this issue. tellingly, contracts referencing u. s. dollar libor, without robust fallback language, continue to be written. my message : don ’ t wait for term rates to get your house in order. engage with this issue now and understand what it means for your operations. recognize where your exposure lies and deal with the contracts that mature after 2021 that lack robust fallback language. this is a problem you have the opportunity to get ahead of now. don ’ t wait until january 1, 2022 to manage your business ’ transition away from libor, because it ’ s going to be too late. conclusion i ’ ll conclude with this : reference rates are a complex issue, with numerous countries, a wide range of public and private entities, and trillions of dollars involved. progress has been made, and the way forward is clear. but we are now at a critical point in the timeline. the very complexity of this issue is why the industry cannot afford to wait any longer. the clock is ticking, and there are 901 days left. 1 alternative reference rates committee, second report, march 2018. 2 financial stability oversight council. 2018. annual report. washington ( revised june 20, 2019 ). 3 international organization of securities commissions, principles for financial benchmarks, final report, july 2013. 3 / 3 bis central bankers'speeches