06 Nov Agencies – Interagency Statement – Reference Rates for Loans (LIBOR Transition)
November 6, 2020
The Agencies issued a joint statement on LIBOR, which is expected to cease after 2021. Reiterated that agencies are not endorsing a specific replacement rate for LIBOR for loans. Permitted to use any reference rate appropriate for their funding model and customer needs; however, banks should include fallback language within lending contracts that provides for the use of a robust fallback rate if the initial reference rate is discontinued.
Risk management processes in place should be in place, commensurate with the size and complexity of their exposures, to identify and mitigate LIBOR transition risks. Alternative reference rates committee recommended the secured overnight financing rate (SOFR) as its preferred alternative for both cash and for derivative transactions.
Examiners will not criticize banks solely for using loan reference rates other than SOFR. Banks are encouraged to decide on a proper rate and begin transitions from LIBOR without delay.
For more information, visit www.federalreserve.gov