Board of Governors of the Federal Reserve System

Federal Deposit Insurance Corporation

Office of the Comptroller of the Currency

Statement on LIBOR Transition

November 30, 2020

The Board of Governors of the Federal Reserve System, the Office of the Comptroller of

the Currency, and the Federal Deposit Insurance Corporation (collectively, the agencies) are

issuing this statement to encourage banks to transition away from U.S. dollar (USD) LIBOR as

soon as practicable. [Footnote 1

- For purposes of this guidance, the term “bank” includes depository institutions under the Federal Deposit Insurance

Act (12 U.S.C. 1813(c)(1)), U.S. branches and agencies of foreign banks, Edge and agreement corporations, bank

holding companies, and savings and loan holding companies. End of Footnote 1.]

Background and Discussion

The FFIEC's “Joint Statement on Managing the LIBOR Transition” [Footnote 2

- https://www.ffiec.gov/press/PDF/FFIEC%20Statement%20on%20Managmg%20the%20LIBOR%20Transition.pdf. End of Footnote 2.]

noted that the

LIBOR transition is a significant event that banks should closely manage. The FFIEC statement

further explained that new financial contracts should either utilize a reference rate other than

LIBOR or have robust fallback language that includes a clearly defined alternative reference rate

after LIBOR's discontinuation. Separately, the agencies recently issued a statement that says a 

bank may use any reference rate for its loans that the bank determines to be appropriate for its

funding model and customer needs. [Footnote 3

- See Federal Reserve Supervision and Regulation Letter 20-25 (November 6, 2020); OCC Bulletin 2020-98

(November 6, 2020); and FDIC Financial Institution Letter 104-2020 (November 6, 2020). End of Footnote 3.]

The administrator of LIBOR has announced it will consult on its intention to cease the 

publication of the one week and two month USD LIBOR settings immediately following the

LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately

following the LIBOR publication on June 30, 2023. [Footnote 4

- Previously, the Contributor Banks to the USD LIBOR panel had agreed to serve as Contributor Banks only until

December 31, 2021. End of Footnote 4.]

Extending the publication of certain USD

LIBOR tenors until June 30, 2023 would allow most legacy USD LIBOR contracts to mature

before LIBOR experiences disruptions. Failure to prepare for disruptions to USD LIBOR,

including operating with insufficiently robust fallback language, could undermine financial 

stability and banks' safety and soundness. [Footnote 5

- For example, a disorderly transition away from LIBOR could pose consumer protection, litigation, and reputational 

risks. Various provisions of federal law require banks to operate in a safe and sound manner. See, e.g., 12 U.S.C.

321-338a, 1467a(g), 1818(b), 1844(b), and 3101 etseq. End of Footnote 5.]

Given consumer protection, litigation, and reputation risks, the agencies believe entering

into new contracts that use USD LIBOR as a reference rate after December 31, 2021, would
create safety and soundness risks and will examine bank practices accordingly. [Footnote 6

- For this purpose, “new contracts” would include new USD LIBOR lending; new USD LIBOR debt, preferred

equity, or securitization issuance; and new USD LIBOR derivatives transactions. End of Footnote 6.]

Therefore, the

agencies encourage banks to cease entering into new contracts that use USD LIBOR as a 

reference rate as soon as practicable and in any event by December 31, 2021. New contracts

entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or

have robust fallback language that includes a clearly defined alternative reference rate after

LIBOR's discontinuation. These actions are necessary to facilitate an orderly— and safe and

sound— LIBOR transition. If the administrator of LIBOR extends the publication of USD

LIBOR beyond December 31, 2021, the agenciesrecognize that there may be limited

circumstances when it would be appropriate for a bank 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

transactionsto 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 bank's or any client of the bank's USD LIBOR exposure on contracts

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

before January 1, 2022.

Conclusion

The LIBOR transition is a significant event that poses complex challengesfor banks and 

the financial system. The agencies encourage banks to cease entering into new contracts that use

USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021,

in order to facilitate an orderly—and safe and sound— LIBOR transition.

This statement should not be read as announcing that the LIBOR benchmark has ceased,

or will cease, to be provided permanently or indefinitely or that it is not, or no longer will be,

representative for the purposes of language adopted by the International Swaps and Derivatives

Association.