In July 2019, we published an eBrief detailing the expected sunset of LIBOR and our recommendations for managing the transition. The FFIEC recently issued a Joint Statement on Managing the LIBOR Transition, highlighting regulatory and risk management expectations for institutions with exposure to LIBOR. Overall, institutions can expect increased supervisory focus on evaluating preparedness for LIBOR’s discontinuation throughout 2020 and 2021, particularly for institutions with significant exposure or less-developed transition processes. Key takeaways include the following:
- Identify and quantify LIBOR exposures across product categories and lines of business
- Implement risk management processes commensurate with the size/complexity of the institutions and extent of exposure
- Take steps to include appropriate fallback language to avoid any potential legal or safety and soundness risk.
- Plan to address any potential consumer protection risk, including disclosures to help customers understand how new reference rates will affect their payments and terms.
If you haven’t already, now is a good time to create an internal LIBOR Cessation Task Force. Start setting timelines and action items to gain confidence in your institution’s preparedness for the end of LIBOR and the beginning of a new reference rate.