On 11/6/2020, the joint regulators (Federal Reserve, OCC, and FDIC) issued a statement reiterating that the agencies do not endorse a specific replacement rate for the London InterBank Offered Rate (Libor), which is expected to cease after 2021. The statement explains that banks may use any reference rate for loans that the banks determine to be appropriate for their funding models and customer needs. In addition, the statement encourages banks to include appropriate language in lending contracts that provides for using a robust fallback rate if the initial reference rate is discontinued.

Furthermore, the statement explains that

all banks should have risk management processes in place, commensurate with the size and complexity of their exposures, to identify and mitigate their Libor transition risks. For more information, refer to OCC Bulletin 2020-68, “Libor Transition: FFIEC Statement on Managing the Libor Transition and Guidance for Banks.”
examiners will not criticize banks solely for using a reference rate, including a credit-sensitive rate, other than the secured overnight financing rate (SOFR), for loans.

The full interagency statement can be found here.

Adam Witmer

Adam Witmer is a speaker, author, and founder of the Compliance Cohort. Adam has taught hundreds of seminars and training sessions to thousands of bankers throughout the United States and teaches on all areas of regulatory compliance. Adam has written five e-books that he never published, hit a grizzly bear while driving in a National Park, and is an award winning photographer and musician (though he no longer takes photos nor plays any instruments). In his spare time, Adam can be found kayaking on the lake, doing taekwondo with his kids, working on his (project) house, or spending time with his family.

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