Federal Agencies Issue Joint Statement on the LIBOR Transition

The Board of Governors of the Federal Reserve System, the FDIC, the OCC, the National Credit Union Administration, and the CFPB, in conjunction with the state bank and state credit union regulators, (collectively, Agencies) recently issued a joint statement on managing the LIBOR transition.  The statement emphasizes the expectation that supervised institutions with LIBOR exposure continue to progress toward an orderly transition away from LIBOR.

The statement also includes clarification regarding new LIBOR contracts, considerations when assessing appropriateness of alternative reference rates, and expectations for fallback language.  Moreover, the statement cross-references previous Agency communications regarding the LIBOR transition, and encouraged supervised institutions to take the following actions: i) develop and implement a transition plan for communicating with consumers, clients, and counterparties; and ii) ensure systems and operational capabilities will be ready for transition to a replacement reference rate after LIBOR’s discontinuation.

Finally, the statement warns that failure to adequately prepare for LIBOR’s discontinuance could undermine financial stability and institutions’ safety and soundness and create litigation, operational, and consumer protection risks.