OCC’s Hsu: Regulators See No Future for ‘Zombie’ Libor

With several tenors of Libor scheduled to sunset at year-end, Acting Comptroller of the Currency Michael Hsu today emphasized that regulators will not allow “new Libor exposures—zombie or otherwise—after Dec. 31, 2021, and we mean it.” Hsu was referring to the belief by some that some form of Libor will survive after that date as “synthetic Libor” or “zombie Libor.”

Warning banks not to be complacent in their transition away from Libor, Hsu emphasized that “at this point in the timeline, the OCC expects every bank to be executing upon a comprehensive plan to address the effects of Libor cessation that is tailored to the bank’s particular exposure to Libor under its current business model, risk profile and strategic plan.”

He also addressed the use of alternative reference rates, reiterating previously issued guidance stating that any replacement rate should be “robust and appropriate for their risk profile, nature of exposures, risk management capabilities, customer and funding needs, and operational capabilities.” Given that SOFR—the Alternative Reference Rates Committee’s preferred Libor alternative—“provides a robust rate suitable for use in most products, with underlying transaction volumes that are unmatched by other alternatives,” Hsu said that his agency’s supervisory efforts around the Libor transition “will initially focus on non-SOFR rates.”