Agencies – Issued Answers to Frequently Asked Questions on the Transition Away from London Interbank Offered Rate (LIBOR)

July 29, 2021 – FAQs related to transition impact on regulatory capital instrument eligibility criteria. Guidance applies to FRB supervised firms including those with less than $10 billion assets. Also, applicable to all OCC-supervised community banks and all FDIC-insured firms.

Agencies Regulatory Capital – Issuance:
FRB supervisory letter SR 21-12 notes replacing/amending terms of capital instrument does not constitute issuance of a new instrument under capital regulation 12 CFR 217. Amended instrument must not be substantially different, i.e., does not have amended terms beyond those relevant to implementing the new reference rate or rate structure. FDIC, OCC issued analogous guidance, pertaining to FDIC 12 CFR 324, OCC 12 CFR 3.

Agencies Regulatory Capital – Redemption:
Agencies further note term replacement/amendment away from LIBOR to another reference rate/rate structure does not create incentive to redeem under capital rules. Illustrative scenario where credit spread revised to account for differential between LIBOR, new rate without adjusting issuer credit quality does not compel redemption.

FRB TLAC and IHC Rules:
FRB issued additional FAQs on issues re TLAC, international holding companies (IHC). A GSIB that exchanges or amends an eligible debt security does not constitute a new issuance for purposes of total loss absorbing capital (TLAC), Reg YY, 12 CFR 252.60. Further, advises that a tender offer to facilitate transition from USD LIBOR would not be inconsistent with Reg YY; must meet conditions such as RWA, and exposure thresholds.

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