On July 15, MFA submitted a letter to the Alternative Reference Rates Committee (ARRC) on its interim report and consultation dated May 2016. The Board of Governors of the Federal Reserve (Board) convened the ARRC in 2014 to identify a set of alternative reference interest rates that are more firmly transaction-based that USD LIBOR. In the consultation paper, the ARRC discussed that they have preliminarily narrowed the list of potential rates to: (1) the Overnight Bank Funding Rate; and (2) some form of overnight Treasury general collateral repurchase agreement rate, and sought public comment on these rates as well a proposed strategy to transition to a new rate. In our comment letter, MFA did not express a preference between the ARRC’s two proposed rates. Rather, we applauded the Board and the ARRC for consulting with end-users on their current thinking on potential alternative reference rates. In addition, MFA expressed concerns with the market impact of transitioning to a new reference rate, and we: (1) suggested that the Board and the ARRC consult not only end-users, but also the clients and investors of end-users on the proposed alternative reference rates; and (2) raised a number of concerns with the proposed transition strategy that we believe could lead to market disruptions and/or illiquidity.
