Featured Product

    FFIEC Issues Statement on Management of LIBOR Transition

    July 01, 2020

    FFIEC, on behalf of its members, issued a joint statement on managing the transition away from the London Interbank Offered Rate (LIBOR). The statement highlights the financial, legal, operational, and consumer protection risks that will result from the expected discontinuation of the LIBOR for institutions with exposure to the LIBOR reference rate. Institutions with LIBOR exposure should have appropriate risk management processes in place to identify and mitigate transition risks. In reference to this statement, FDIC also published a Financial Institution Letter (FIL-68-2020) that applies to all FDIC-supervised institutions with total assets exposure of under USD 1 billion to the LIBOR reference rate.

    The financial services industry used LIBOR as a short-term reference rate to price variable rate loans and securities, deposits, borrowings, and interest rate hedging transactions. While some smaller and less complex institutions may hold little to no LIBOR-denominated assets and liabilities, the change will affect almost every institution. Impact is expected to be particularly significant for the largest institutions and those engaged materially in capital markets activities such as interest rate swaps, other derivatives, or hedging transactions. The statement highlights a number of potential preparedness and risk management actions that institutions should factor into their planning for the transition. Institutions should consider existing safety and soundness standards and consumer protection laws as they plan for and address risks that will arise with the transition from LIBOR. Careful planning will help institutions avoid financial losses or consumer harm. The following are the key highlights of the joint statement:

    • Institutions should identify and quantify their LIBOR exposures to effectively plan for the transition and mitigate potential financial, legal, operational, and consumer protection risks.
    • Institutions with LIBOR exposure should have commensurate with the size and complexity of the institution, its activities, and extent of exposure.
    • Fallback language in financial contracts will determine how the replacement of a discontinued reference rate will be handled. Institutions with LIBOR-indexed contracts should take steps to include appropriate fallback language that considers a permanent discontinuation of the reference rate to avoid potential legal and safety and soundness risk.
    • Transition plans should address consumer protection risk, including required disclosures to consumers regarding changes in terms and advanced communication for consumers to help them understand how new reference rates would affect their payments, Annual Percentage Rate, and other terms.
    • Given the significant effort involved in preparing for the transition, the supervisory focus on evaluating institutions’ preparedness for the LIBOR discontinuation will increase during 2020 and 2021, particularly for institutions with significant LIBOR exposure or less-developed transition processes.


    Related Links

    Keywords: Americas, US, Banking, LIBOR, Risk Free Rates, Benchmark Reforms, Interest Rate Benchmarks, FDIC, FFIEC

    Related Articles
    News

    HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration

    The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.

    July 29, 2021 WebPage Regulatory News
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    ECB Study Assesses Impact of Basel III Finalization Package

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.

    July 26, 2021 WebPage Regulatory News
    News

    ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading

    The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

    July 26, 2021 WebPage Regulatory News
    News

    PRA Updates Remuneration Policy Statement Templates and Tables

    The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.

    July 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7307