Thank you, Secretary Yellen. Last year, when this Council previously discussed the London Interbank Offered Rate (LIBOR), I referenced an important figure in the annals of economic theory: the fairy tale author Hans Christian Andersen.[1]

The LIBOR-referencing market ended up like the emperor at the end of Andersen’s story—revealed to have no clothes.

I am glad to see markets taking up use of the Secured Overnight Financing Rate (SOFR), which is based on a nearly trillion-dollar market. I understand that many market participants would like to use something that relies on unsecured credit markets, and also uses term out to 12 months.

It is important that any rate used to replace LIBOR be robust and not ill clad. Certain alternatives being considered in the markets, however, present many of the same flaws as LIBOR: thin markets—in times of stress scantily-clad—with few underlying transactions, creating a system vulnerable to collapse and manipulation.

As I said last year, I think the so-called BSBY rate (Bloomberg Short-Term Bank Yield Index) has infirmities that will not stand the test of time—and will not be good for financial stability or for future FSOC members. While the International Organization of Securities Commissions (IOSCO) is currently conducting a review of alternatives to USD LIBOR, I do not think BSBY meets IOSCO’s principles for a stable and reliable benchmark.

As relates to Term SOFR, while Term SOFR is not based on the thin, short-term credit markets, I think it is important to continue to ensure that its underlying references of SOFR, and the SOFR futures rates Term SOFR references, are truly deeply, liquid, and fully clad.

In the meantime, SEC staff continue to stress the need for registrants to prepare for the transition from LIBOR next June.

Thank you.