RBC Capital Markets Michael Cloherty sent out a bulletin yesterday, entitled, "US Interest Rate Focus LIBOR: Beyond the ARRC Conference." He says, "The Alternative Rates Reference Committee released a very aggressive timeline for moving from LIBOR to SOFR. The scramble is due to LIBOR's reliance on volunteers. Individual benefits from volunteering are minimal, but the communal benefits of having LIBOR have allowed $160T of USD exposure to develop. However, volunteering entails individual risks that have become obvious in recent years, particularly as underlying reference transactions become rare. The FCA can force banks to remain on the LIBOR panel for a maximum of two years. To ensure that LIBOR exists for longer, the FCA agreed to relinquish that authority if panel banks keep contributing through Q4 2021. Some believe that banks will remain on the LIBOR panel because the costs of replacing LIBOR are massive. Many large banks are not on the LIBOR panel, and they face the same choice as panel banks: they could join the panel to reduce the risk that LIBOR disappears. If banks are willing to absorb this risk to ensure LIBOR survival, these non-panel banks should be scrambling to join the panel. Instead, it seems individual incentives differ so dramatically from the communal incentives that LIBOR beyond 2021 is highly uncertain." In other news, The Federal Reserve Bank of New York recently updated its "Reverse repo counterparties list. A statement says, "Active Assets Government Trust, managed by Morgan Stanley Investment Management Inc., has been added to the list of reverse repo counterparties, effective November 6, 2017."

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