Board of Governors of the Federal Reserve System

Consumer Financial Protection Bureau

Federal Deposit Insurance Corporation

National Credit Union Administration

Office of the Comptroller of the Currency

State Bank and Credit Union Regulators

October 20, 2021

Joint Statement on Managing the LIBOR Transition

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Purpose

Five federal financial institution regulatory agencies, [Footnote 1

- The agencies are the Board of Governors of the Federal Reserve System (Board), Federal Deposit

Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), the National Credit

Union Administration (NCUA), and the Consumer Financial Protection Bureau (CFPB). End of Footnote 1.]

in conjunction with the state bank

and state credit union regulators, (collectively, agencies) are jointly issuing this statement

to emphasize the expectation that supervised institutions with LIBOR exposure continue

to progress toward an orderly transition away from LIBOR. Additionally, this statement

includes clarification regarding new LIBOR contracts, considerations when assessing

appropriateness of alternative reference rates, and expectations for fallback language.

Failure to adequately prepare for LIBOR's discontinuance could undermine financial

stability and institutions' safety and soundness and create litigation, operational, and

consumer protection risks.

Background Information

On July 1, 2020, the Federal Financial Institutions Examination Council (FFIEC) issued a

statement [Footnote 2

- See FFIEC - Joint Statement on Managing the LIBOR Transition End of Footnote 2.]

that highlighted the financial, legal, operational, and consumer protection risks

that will result from the LIBOR's discontinuation. The FFIEC statement encouraged

supervised institutions to continue their efforts to prepare for the change and address risks 

associated with the LIBOR transition.

On March 5, 2021, the United Kingdom Financial Conduct Authority (FCA) and

Intercontinental Exchange (ICE) Benchmark Administration (IBA) announced [Footnote 3

- See FCA announcement on future cessation and loss ofrepresentativeness ofthe LIBOR

benchmarks3.] End of Footnote 

that the

one-week and two-month U.S. dollar (USD) LIBOR settings will cease to be published 

immediately after December 31, 2021. The publication of overnight and one-, three-,

six-, and 12-month USD LIBOR settings will be extended through June 30, 2023, which 

will provide additional time to wind down or renegotiate existing contracts that reference

these LIBOR settings. Importantly, the extension of publication for certain USD LIBOR
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rates is not an indication that any of the extended USD LIBOR rates will be subsequently

published after June 30, 2023.

The Board, FDIC, and OCC previously communicated that a supervised institution may

use any reference rate for its loans that the institution's management determines is

appropriate based on its funding model and customer needs. [Footnote 4

- See OCC Bulletin 2020-98; Federal Reserve Supervision and Regulation (SR) Letter 20-25; and FDIC

Financial Institution Letter 104-2020. End of Footnote 4.]

Separately, the OCC,

Board, and FDIC issued a joint statement [Footnote 5

- Agency statements on the LIBOR transition: OCC Bulletin 2020-104; Federal Reserve SR 20-27; and 

FDIC PR-129-2020. End of Footnote 5.]

that encouraged supervised institutions to

cease entering into new contracts that use USD LIBOR as a reference rate as soon as

practicable, but no later than December 31, 2021. The NCUA issued similar guidance

encouraging institutions to transition away from using USD LIBOR as a reference rate as

soon as possible, but no later than December 31, 2021, and to ensure existing contracts

have robust fallback language that includes a clearly defined alternative reference rate. [Footnote 6

- See NCUA Letter to Credit Unions 21-CU-03 (May 2021) and Supervisory Letter 21-01 (May 2021). End of Footnote 6.]

Supervisory Considerations

Clarification on the meaning of new LIBOR contracts

Given LIBOR's discontinuance, the agencies believe that entering into new contracts,

including derivatives, that use LIBOR as a reference rate after December 31, 2021, would

create safety and soundness risks, including litigation, operational, and consumer

protection risks. For this purpose, a new contract would include an agreement that (i)

creates additional LIBOR exposure for a supervised institution or (ii) extends the term of

an existing LIBOR contract. [Footnote 7

- The agencies recognize that there may be limited circumstances in which it would be appropriate for an

institution to enter into new USD LIBOR contracts after December 31, 2021, such as (i) transactions

executed for purposes of required participation in a central counterparty auction procedure in the case of a

member default, including transactions to hedge the resulting USD LIBOR exposure; (ii) market making in

support of client activity related to USD LIBOR transactions executed before January 1, 2022; (iii) 

transactions that reduce or hedge the institution's or any client of the institution's USD LIBOR exposure on

contracts entered into before January 1, 2022; and (iv) novations of USD LIBOR transactions executed

before January 1, 2022. End of Footnote 7.]

A draw on an existing agreement that is legally

enforceable (e.g., a committed credit facility) would not be viewed as a new contract.

Additionally, considering the narrowing timeline involved, contracts entered into on or

before December 31, 2021, should either use a reference rate other than LIBOR or have

fallback language that provides for use of a strong and clearly defined alternative

reference rate after LIBOR's discontinuation.

Considerations when assessing the appropriateness of alternative reference rates

Safe-and-sound practices include conducting the due diligence necessary to ensure that

alternative rate selections are appropriate for the supervised institution's products, risk

profile, risk management capabilities, customer and funding needs, and operational

capabilities. As part of their due diligence, supervised institutions should understand how 

their chosen reference rate is constructed and be aware of any fragilities associated with

that rate and the markets that underlie it.
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Expectations for fallback language

Supervised institutions are advised to identify all contracts that reference LIBOR, lack

adequate fallback language, and will mature after the relevant tenor ceases. Going

forward, supervised institutions are encouraged to include fallback language in new or

updated contracts that provides for using a strong and clearly defined fallback rate when

the initial reference rate is discontinued.

Additional considerations

Supervised institutions are reminded of previous agency communications [Footnote 8

- For example, the Federal Reserve issued guidance (SR Letter 21-7) to assist examiners in assessing

supervised firms' progress in transitioning away from LIBOR; the OCC issued guidance (OCC Bulletin

2020-68) and a self-assessment tool (OCC Bulletin 2021-7) for supervised institutions to evaluate their

preparednessfor LIBOR cessation; the Conference of State Bank Supervisorsissued a self-assessment tool

for supervised institutions in September 2019 titled Ten Steps for LIBOR Transition; the NCUA issued a

Letter to Credit Unions (May 2021, LTCU 21-CU-03) and a Supervisory Letter to field staff on the LIBOR

transition; the FDIC published a Supervisory Insights Journal Article (winter 2018) as a resource for

supervised institutionsin addressing the LIBOR transition; and the CFPB issued a notice of proposed

rulemaking and a list of frequently asked questionsrelating to the LIBOR transition (June 4, 2020). End of Footnote 8.]

and are

encouraged to taking the following actions as they prepare for the LIBOR transition:

• develop and implement a transition plan for communicating with consumers, clients,

and counterparties; and

• ensure systems and operational capabilities will be ready for transition to a 

replacement reference rate after LIBOR's discontinuation.

Supervised institutions that take a comprehensive and proactive approach will be better

prepared for transitioning away from LIBOR. Supervisory focus and review will

continue to increase as the LIBOR cessation date approaches.