|For Immediate Release||July 1, 2020|
Financial Regulators Issue Statement on Managing the LIBOR Transition
The members of the Federal Financial Institutions Examination Council (FFIEC) today highlighted the risks that will result from the transition away from LIBOR, and encouraged supervised institutions to continue their efforts to transition to alternative reference rates in order to mitigate financial, legal, operational, and consumer protection risks.
The financial services industry uses LIBOR as a reference rate for many financial products and instruments that include loans, investments, and deposits to a range of customers, as well as borrowings and derivatives. While some smaller and less complex institutions may have limited exposure to LIBOR- denominated instruments, the transition to alternative reference rates will affect almost every institution.
The statement also highlights the legal and consumer compliance risks associated with inadequate fallback language, when the contractual language does not contemplate LIBORís permanent discontinuance. Institutions should take steps to identify and address existing contracts with inadequate fallback language to mitigate potential legal risk as well as safety and soundness risk.
Financial institutions should have risk management processes in place to identify and mitigate their LIBOR transition risks that are commensurate with the size and complexity of their exposure and third-party servicer arrangements. The statement identifies areas where supervisory staff will focus their reviews of LIBOR transition planning and risk mitigation efforts at regulated institutions.
The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions. It also conducts schools for examiners employed by the five federal member agencies represented on the FFIEC and makes those schools available to employees of state agencies that supervise financial institutions. The Council consists of the following six voting members: a member of the Board of Governors of the Federal Reserve System; the Chairman of the Federal Deposit Insurance Corporation; the Director of the Consumer Financial Protection Bureau; the Comptroller of the Currency; the Chairman of the National Credit Union Administration; and the Chairman of the State Liaison Committee.