Agencies on LIBOR transition

The OCC, Federal Reserve Board, and FDIC have announced they have issued an interagency Statement on Reference Rates for Loans reiterating that the agencies do not endorse a specific replacement rate for the London InterBank Offered Rate (LIBOR), which is expected to cease after 2021. Banks may use any reference rate for loans that the banks determine to be appropriate for their funding models and customer needs. Banks should include language in lending contracts that provides for using a robust fallback rate if the initial reference rate is discontinued. The statement emphasizes that—

• all banks should have risk management processes in place, commensurate with the size and complexity of their exposures, to identify and mitigate their LIBOR transition risks. For more information, refer to the FFIEC "joint Statement on Managing the LIBOR Transition."
• examiners will not criticize banks solely for using a reference rate, including a credit-sensitive rate, other than the secured overnight financing rate (SOFR), for loans.

The agencies encourage banks to determine appropriate reference rates for lending activities and begin transitioning loans away from LIBOR without delay. They also encourage banks to accelerate outreach to lending customers to ensure that they are aware of, and prepared for, the transition from LIBOR. Finally, the agencies encourage banks to consider any technical changes that might be required for internal systems to accommodate new reference rates or fallback rates.