ARRC stands for Alternative Reference Rates Committee. It is a financial industry committee established by the Federal Reserve in the United States in 2014. The purpose of ARRC is to identify and promote a more robust and reliable alternative to the London Interbank Offered Rate (LIBOR).
LIBOR is a widely used benchmark interest rate that serves as a reference for various financial contracts, including loans, derivatives, and mortgages. However, its calculation is based on a panel of banks reporting their borrowing costs, which can be problematic during times of financial stress or when the interbank lending market is illiquid. Therefore, the ARRC was formed to find an alternative to LIBOR that would be more robust and resistant to manipulation.
The committee consists of various market participants, including banks, asset managers, regulators, and industry associations. They work together to identify suitable alternative reference rates that are based on more liquid and transparent markets. The ARRC is responsible for guiding the transition from LIBOR to the selected alternative reference rate.
The committee's efforts include developing a term structure for the chosen rate, identifying conventions and protocols for its use in financial contracts, and promoting market adoption and awareness. The ARRC also provides educational materials and guidance to market participants to facilitate a smooth and efficient transition away from LIBOR.
In summary, the Alternative Reference Rates Committee (ARRC) is a committee established by the Federal Reserve in the United States to identify and promote an alternative benchmark interest rate to LIBOR. Its role is to ensure a smoother transition to a more reliable and transparent reference rate in the financial industry.
