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 InvestingRelated Articles
APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
FSB Sets Out Good Practices for Crisis Management Groups
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
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.
OSFI Updates Timeline for Implementation of Certain Basel Rules
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
APRA Finalizes Capital Adequacy Standards for Banks
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
