FASB to Provide Relief on Libor Transition

As banks prepare to make the transition away from the London Interbank Offer Rate as a benchmark interest rate, the Financial Accounting Standards Board today approved staff proposals to provide relief from onerous accounting processes that would normally be required when contracts are modified.

Under normal circumstances, modifications made to loan and lease contracts require individual assessments as to whether the modification qualifies as an extinguishment or a troubled debt restructuring, or whether specific derivative accounting may be continued. FASB’s decisions, which will be formally proposed in an exposure draft that is expected later this year, will largely eliminate those requirements if the modifications are due to the industry’s migration from Libor to a new rate.

American Bankers Association staff have been actively engaged with the Alternative Reference Rates Committee to address the many issues related to the migration of Libor to the ARRC-recommended Secured Overnight Financing Rate or other rates.