Supervision and Regulation Letters

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SR 20-27:

Interagency Statement on LIBOR Transition

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF
SUPERVISION AND REGULATION

SR 20-27
November 30, 2020

TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK AND INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE

SUBJECT:

Interagency Statement on LIBOR Transition

Applicability:  This letter applies to all institutions supervised by the Federal Reserve.

On November 30, 2020, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively, the agencies) issued a statement to encourage banks1 to transition away from U.S. dollar (USD) LIBOR as reference rate as soon as practicable.

The administrator of LIBOR has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.2 Extending the publication of certain USD LIBOR tenors until June 30, 2023 would allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions. Failure to prepare for disruptions to USD LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks' safety and soundness.

Given consumer protection, litigation, and reputation risks, the agencies believe entering into new contracts that use USD LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and will examine bank practices accordingly.3 Therefore, the agencies encourage banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021, in order to facilitate an orderly—and safe and sound—LIBOR transition. New contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation.

Reserve Banks are asked to distribute this letter to the supervised organizations in their districts and to appropriate supervisory staff. In addition, institutions may send questions via the Board's public website.4

signed by
Michael S. Gibson
Director
Division of
Supervision and Regulation

Attachments:
Notes:
  1. For purposes of this guidance, the term "bank" includes depository institutions under the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(1)), U.S. branches and agencies of foreign banks, Edge and agreement corporations, bank holding companies, and savings and loan holding companies.  Return to text.
  2. Previously, the Contributor Banks to the USD LIBOR panel had agreed to serve as Contributor Banks only until December 31, 2021.  Return to text.
  3. For this purpose, "new contracts" would include new USD LIBOR lending; new USD LIBOR debt, preferred equity, or securitization issuance; and new USD LIBOR derivatives transactions.  Return to text.
  4. See http://www.federalreserve.gov/apps/contactus/feedback.aspx.  Return to text.
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Last Update: November 30, 2020