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
BDF Updates Documentation for AnaCredit ReportingRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
