OCC published a bulletin that provides a self-assessment tool for banks to evaluate their preparedness for the expected cessation of London Inter Bank Offered Rate (LIBOR). The self-assessment tool can be used to assess the appropriateness of LIBOR transition plan of a bank, bank management’s execution of the transition plan, and related oversight and reporting. This bulletin applies to community banks, but the applicability of some concepts depends on the nature and extent of the LIBOR exposure of a bank.
LIBOR is referenced globally and its expected cessation could affect banks of all sizes through direct or indirect exposure. Banks should develop and implement risk management plans to identify and control risks related to the expected LIBOR cessation. Bank management may use this self-assessment tool to evaluate bank risk management processes to identify and mitigate the LIBOR transition risks. Not all sections or questions apply to all banks. Bank management should tailor the risk management process of bank to the size and complexity of the bank’s LIBOR exposures. Bank management should consider all applicable risks (such as operational, compliance, strategic, and reputation) when scoping and completing the LIBOR cessation preparedness assessments. Given the expectation for banks to cease entering into new contracts that use LIBOR as a reference rate by December 31, 2021, bank management should assess whether the bank’s progress with preparedness is sufficient.
Keywords: Americas, US, Banking, LIBOR, LIBOR Transition, Interest Rate Benchmark, Self-Assessment Tool, OCC
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