OCC Bulletin 2021-48| October 20, 2021

LIBOR Transition: Joint Statement on Managing the LIBOR Transition

To

Chief Executive Officers of All National Banks, Federal Savings Associations, and Federal Branches and Agencies; Department and Division Heads; All Examining Personnel; and Other Interested Parties

Summary

The Office of the Comptroller of the Currency (OCC) and other federal financial institution regulatory agencies (collectively, the agencies),1 in conjunction with the state bank and state credit union regulators, today issued a statement to emphasize the importance of an orderly transition away from the London Interbank Offered Rate (LIBOR).

Note for Community Banks

This OCC bulletin applies to community banks.2

Highlights

  • Banks are reminded of previous agency communications to prepare for the LIBOR transition. Failure to adequately prepare for LIBOR's cessation presents financial stability risks and could undermine banks' safety and soundness.
  • Given LIBOR's planned cessation, entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks.3 A new contract is one that creates additional LIBOR exposure or extends the terms of an existing LIBOR contract.
  • Bank management is advised to identify contracts that will mature after the relevant LIBOR settings cease. Further, banks should include contractual language that clearly defines an alternative reference rate.
  • Bank management is advised to conduct due diligence on alternative rate selections to demonstrate that the alternative rate is appropriate for banks' products, risk profiles, risk management capabilities, customer and funding needs, and operational capabilities.
  • The agencies' supervisory focus and review will continue to increase as the June 30, 2023, LIBOR cessation date approaches.

The joint statement identifies four limited circumstances in which continuing to transact in LIBOR may be necessary to ensure a safe, sound, and orderly transition. Best practice for making use of these exceptions should include clear internal governance and oversight, given the potential increased risks with managing these positions with permanent cessation of all LIBOR tenors expected June 30, 2023.

Further Information

Please contact Ang Middleton, Risk Specialist, or Chris McBride, Director for Market Risk, Treasury and Market Risk Policy, at (202) 649-6360.

 

Grovetta N. Gardineer
Senior Deputy Comptroller for Bank Supervision Policy

Related Link

1 The federal financial institution regulatory agencies are the OCC, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, and the National Credit Union Administration.

2 "Banks" refers collectively to national banks, federal savings associations, and federal branches and agencies of foreign banking organizations.

3 Refer to OCC Bulletin 2020-104, "LIBOR Transition: Joint Statement on U.S. Dollar LIBOR Transition." This joint statement provided three limited circumstances to continue transacting in LIBOR.