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Financial Services Law Insights and Observations

Fed issues LIBOR transition examination guidance

Federal Issues Federal Reserve LIBOR Examination

Federal Issues

On March 9, the Federal Reserve Board issued supervisory letter SR 21-7 as a follow-up to a November 2020 interagency statement issued by the Fed, FDIC, and OCC that encouraged supervised institutions to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable, but by December 31, 2021 at the latest. (Covered by InfoBytes here.) However, the Fed’s SR 21-7 letter notes that the “extension of certain LIBOR tenors until June 30, 2023, will allow some existing LIBOR exposures to mature naturally.” SR 21-7 provides supervisory guidance for examiners to consider when assessing an institution’s plan to transition away from LIBOR, including the following six key aspects of a firm’s transition efforts: “(1) transition planning; (2) financial exposure measurement and risk assessment; (3) operational preparedness and controls; (4) legal contract preparedness; (5) communication; and (6) oversight.” SR 21-7 also includes specific guidance for assessing LIBOR transition efforts at institutions with less than $100 billion in total consolidated assets (which the Fed assumes “generally have less material and less complex LIBOR exposures”), as well as institutions with $100 billion or more in total consolidated assets.

Find continuing InfoBytes coverage on LIBOR here.

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