Financial institutions’ transition efforts away from the London Interbank Offered Rate (LIBOR) will be intensely scrutinized by the Federal Reserve as the expiration deadline of the benchmark interest rate nears.

Randal Quarles, vice chair for supervision at the Fed, spoke to lenders’ need to “pick up the pace” during a speech at the Structured Finance Association Conference in Las Vegas on Tuesday.

“As the end of LIBOR approaches, Federal Reserve examiners have intensified their focus on supervised institutions’ transition planning,” he said. “… [O]ur examiners expect to see supervised institutions accelerate their use of alternative rates.”

LIBOR will cease to be available for new contracts as of Jan. 1. The rate, overseen by the U.K. Financial Conduct Authority, has historically been subject to manipulation, prompting its impending end and the regulatory push toward alternatives.

The process to move away from LIBOR dates back to 2017, though many financial institutions have been reticent to commit to alternatives. Quarles cited data from the second quarter of 2021 that suggested “large firms used alternative rates for less than 1 percent of floating rate corporate loans and 8 percent of derivatives.”

“A handful of firms have said that they may want more time to evaluate potential alternative rates,” he said. “There is no more time, and banks will not find LIBOR available to use after year-end no matter how unhappy they may be with their options to replace it.”

The Fed’s top choice to replace LIBOR is the Secured Overnight Financing Rate (SOFR), which borrows cash overnight, collateralized by Treasury securities. The Alternative Reference Rates Committee formally recommended forward-looking SOFR term rates in July, addressing a popular criticism from firms hesitant to make the change.

“Given the availability of SOFR, including term SOFR, there will be no reason for a bank to use LIBOR after 2021 while trying to find a rate it likes better,” Quarles said.

Though LIBOR will still exist for remaining U.S. dollar settings through June 30, 2023, Quarles reiterated the Fed will keep its focus on whether supervised institutions stop new use of the rate by the end of the year.

“Change is difficult, but it is inescapable,” he said.