FFIEC: Examiners to Increase Focus on Libor Transition Preparedness

Federal financial regulators today said they will ramp up their supervisory focus on banks’ transitions away from the London Interbank Offered Rate in 2020 and 2021.

In a statement issued by the Federal Financial Institutions Examination Council, the agencies noted that as part of examination activities, “supervisory staff will ask institutions about their planning for the Libor transition including the identification of exposures, efforts to include fallback language or use alternative reference rates in new contracts, operational preparedness, and consumer protection considerations.” The agencies noted that supervisory focus “will be tailored to the size and complexity of each institution’s Libor exposures.”

While the statement does not establish new guidance or regulation, the agencies noted that “institutions should consider existing safety and soundness standards and consumer protection laws as they plan for and address risks that will arise with the transition from Libor,” which is not guaranteed to be sustained beyond 2021.

To prepare for the transition, they recommended that institutions take steps including:

  • Identifying and quantifying Libor exposure across product categories and lines of business
  • Conducting a risk assessment of Libor exposures, which may include scenario testing, legal review and other analysis
  • Creating transition plans with milestones and key completion dates
  • Conducting an assessment by bank management of revisions that may be necessary to update the institution’s policies, processes and internal control systems
  • Assigning responsibility for Libor transition oversight t a committee, team or officer
  • Reporting progress on the Libor transition to the institution’s board of directors and senior management team