On March 9, 2021, the Federal Reserve in its Supervision and Regulation Letter (the Letter) provided guidance to Federal Reserve examiners and supervised institutions to assist in assessing progress in preparing for the LIBOR transition.

Specifically, examiners are directed to review the supervised institutions’ “planning for, and progress in, moving away from LIBOR.” Supervised institutions should note that examiners are encouraged to consider taking supervisory action if an institution is not ready to cease issuances of new LIBOR-based contracts by the end of 2021.

Continue Reading Are you Ready for the End of LIBOR? The Fed Issues Guidance on Assessing LIBOR Transition Progress

The U.S. Office of the Comptroller of the Currency published a three-page self-assessment tool for national banks, federal savings associations, and federal branches and agencies of foreign banking organizations to evaluate their preparedness for the expected cessation of LIBOR. The three-page “tool” poses a series of questions for each bank to answer in a self-assessment.  According to the agency, these questions can be used to assess:

• the appropriateness of a bank’s LIBOR transition plan;
• bank management’s execution of the bank’s transition plan; and
• related oversight and reporting.

The agency pointed out that LIBOR cessation preparedness assessments “should be risk based,” and tailored to the size and complexity of each bank’s LIBOR exposures. The OCC clearly expects each bank to conduct the self-assessment in accordance with its LIBOR risks, but not all sections or questions will apply depending on the nature and extent of the bank’s LIBOR exposure. For example, the OCC noted that community banks may not offer products that use LIBOR, but “could have exposure in such positions as Federal Home Loan Banks borrowings, mortgage-backed securities, or bonds in the banks’ investment portfolios.”

In announcing the self-assessment tool, the OCC also pointed back to the LIBOR-transition guidance that it and the other banking agencies provided on November 30, 2020.  That guidance encouraged banks to transition away from U.S. Dollar LIBOR “as soon as practicable” and, in any event, to “cease entering into new contracts that use USD LIBOR as a reference rate” by December 31, 2021.  In light of that guidance, the OCC statement accompanying the “tool” said that “in 2021, LIBOR exposure and risk assessments and cessation preparedness plans should be at least near completion with appropriate management oversight and reporting in place.”  Most banks, the agency added, “should be working toward resolving replacement rate issues while communicating with affected customers and third parties, as applicable.”