OCC Updated LIBOR Self-Assessment Tool for Banks
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR). 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. The updated self-assessment tool includes questions and considerations regarding the robustness of replacement rates.
Bank management can use this self-assessment tool to evaluate the bank’s risk management process for identifying and mitigating LIBOR transition risks. However, not all sections or questions in the tool apply to all banks. Bank management should tailor the bank’s risk management process to the size and complexity of the bank's LIBOR exposures. OCC expects banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and no later than December 31, 2021. OCC specifies that when assessing a replacement rate, bank management should evaluate whether the:
- rate always reflects competitive forces of supply and demand and is anchored by a sufficient number of observable arm’s-length transactions, during all market conditions including periods of stress.
- rate’s underlying historical data are extensive, spanning a variety of economic conditions.
- rate’s administrator maintains durable methodology and governance processes to ensure the quality and integrity of the benchmark through periods of market stress.
- rate’s transparency provides market participants the ability to understand the methodology, permitting them to independently substantiate the rates published.
- market for financial instruments that use the rate is sufficiently liquid to allow for the effective management of market risk.
Moreover, when assessing preparedness, bank management should consider whether the bank’s progress in preparing for the transition is sufficient. LIBOR exposure and risk assessments and cessation preparedness plans should be complete or near completion with appropriate management oversight and reporting in place. When assessing preparedness, most banks should be working toward resolving replacement rate issues while communicating with affected customers and third parties, as applicable.
Related Links
Keywords: Americas, US, Banking, LIBOR, Benchmark Reforms, Self-Assessment Tool, Risk-Free Rates, LIBOR Transition, OCC
Previous Article
HM Treasury Sets Out Roadmap to Sustainable InvestingNext Article
FASB Proposes Improvements to Credit Losses StandardRelated Articles
APRA Penalizes Heritage Bank for Incorrect Reporting of Capital
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
OSFI Releases Annual Report 2021-2022
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
APRA Finalizes Guidance on Management of Climate Change Risks
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
EBA Publishes Single Rulebook Q&A Updates in November 2021
The European Banking Authority (EBA) Single Rulebook Question and Answer (Q&A) tool updates for this month include answers to 10 questions.
EC Proposes New Measures Under Capital Markets Union Package
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
European Council Adopts Position on Digital Finance Package Proposals
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.
FED Outlines Lending Conditions and Supervisory Activities in H1 2021
The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.
EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR
The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).
APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience
The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.
