Board of Governors of the Federal Reserve System

On July 1, 2020, the Federal Financial Institutions Examination Council (FFIEC) issued a statement (statement) that (i) highlights the risks that will result from the expected discontinuation of LIBOR and (ii) encourages supervised institutions to continue their efforts to transition to alternative reference rates to mitigate associated risks. While the LIBOR transition is expected to be particularly significant for larger and more complex institutions that hold a significant amount of LIBOR-denominated assets and liabilities, the transition will affect almost every institution.

The statement discusses the importance of assessing LIBOR transition risks, noting that institutions should quantify their LIBOR exposure, address contracts with inadequate fallback language, evaluate third-party service providers that use LIBOR, and address or mitigate risks to consumers.  Institutions should have risk management processes in place to identify and mitigate their LIBOR transition risks that are commensurate with the size and complexity of their exposure.

The statement also notes that the supervisory focus on institutions’ preparedness for LIBOR’s discontinuation will increase during 2020 and 2021, particularly for institutions with significant LIBOR exposure or less-developed transition processes.

Reserve Banks are asked to distribute this letter to the supervised organizations in their districts and to appropriate supervisory staff.  Questions may be sent via the Board’s public website.¹

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