Attachment to SR Letter 21-12

Attachment A: Answers to Frequently Asked Questions on the Transition Away from

LIBOR

Effective July 29, 2021

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Regulatory Capital Rule FAQs on LIBOR transition

FAQ Topics:

1) Redemption or reissuance of regulatory capital instruments

Question: Would replacing or amending the terms of a capital instrument to transition 

from the London Interbank Offered Rate (LIBOR) to another reference rate or rate

structure be considered an issuance of a new instrument under the capital rule (12 CFR 

217) for purposes ofthe eligibility criteria for regulatory capital?

Answer: The Board of Governors ofthe Federal Reserve System (Board) does not

consider the replacement or amendment of a capital instrument that solely replaces a

reference rate linked to LIBOR with another reference rate or rate structure to constitute

an issuance of a new capital instrument for purposes ofthe capital rule. If changes in the

terms ofthe replacement or amended capital instrument solely relate to the adoption of

the new reference rate or rate structure, and there are no substantial differences from the

original instrument from an economic perspective, the replacement or amended

instrument would not be considered a new instrument for purposes ofthe eligibility

criteria for regulatory capital. In this case, for purposes ofthe capital rule, the

replacement or amended instrument would retain the maturity ofthe original instrument.

A Board-regulated institution that replaces or amends the terms of a capital instrument to

transition from LIBOR should support its determination with an appropriate analysis that

demonstrates that the replacement or amended instrument is not substantially different

from the original instrument from an economic perspective. The Board may request that

the Board-regulated institution provide this analysis. Considerations for determining that

a replacement or amended capital instrument is not substantially different from the

original instrument from an economic perspective could include, but are not limited to,

whether the replacement or amended instrument has amended terms beyond those

relevant to implementing the new reference rate or rate structure.

2) Regulatory capital instruments with changing distribution rates

Question: For purposes ofthe eligibility criteria for regulatory capital, would replacing or

amending the terms of a capital instrument to transition from the London Interbank

Offered Rate (LIBOR) to another reference rate or rate structure be considered creating

an incentive to redeem the instrument under the capital rule (12 CFR 217)?
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Answer: The Board does not consider the replacement or amendment of a capital

instrument that solely replaces a reference rate linked to LIBOR with another reference

rate or rate structure to constitute creating an incentive to redeem, as long as the

replacement or amended capital instrument is not substantially different from the original

instrument from an economic perspective. For example, amending the credit spread

solely to reflect the difference in basis between LIBOR and the replacement reference

rate and not adjusting for changes in the credit quality ofthe issuer would not result in

creating an incentive to redeem the capital instrument.

A Board-regulated institution that replaces or amends the terms of a capital instrument to

transition from LIBOR should support its determination with an appropriate analysis that

demonstrates that the replacement or amended instrument is not substantially different

from the original instrument from an economic perspective. The Board may request that

the Board-regulated institution provide this analysis. Considerations for determining that

a replacement or amended capital instrument is not substantially different from the

original instrument from an economic perspective could include, but are not limited to,

whether the replacement or amended instrument has amended terms beyond those

relevant to implementing the new reference rate or rate structure.
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Total Loss-Absorbing Capacity (TLAC) FAQs on LIBOR transition

FAQ Topics - U.S. GSIBs, Subpart G ofRegulation YY:

3) Exchange or amendment ofeligible debtsecurities

Question: If a global systemically important BHC (GSIB) exchanges or amends an

“eligible debt security”(12 CFR 252.61) to transition from the London Interbank Offered

Rate (LIBOR) to another reference rate or rate structure, would that be considered an

issuance of a new debt security for purposes ofthe eligibility criteria for the TLAC rule

or a continuation ofthe original “eligible debt security”?

Answer: For purposes of Subpart G ofthe Board's Regulation YY, if a GSIB conducts an

exchange of eligible debt securities or amends such securities' terms in order to replace

outstanding debt securities that reference LIBOR with debt securities that contain a

substantially equivalent reference rate or other rate structure, and no other changes are

made to the debt securities, the replacement or amended debt securities are not

considered newly issued debt securities. The GSIB may treat the replaced or amended

debt securities as ifthey were the originally outstanding debt securities that referenced

LIBOR, rather than treating the debt securities as new debt securities issued on the date

ofthe exchange or amendment. In this case, for purposes of Subpart G ofthe Board's

Regulation YY, the exchanged or amended debt securities would retain the maturity of

the original eligible debt securities.

A GSIB that exchanges an eligible debt security or amends such security's terms to

transition from LIBOR should support its determination with an appropriate analysis that

demonstrates that the replacement or amended security is not substantially different from

the original security from an economic perspective. The Board may ask the GSIB to

provide the analysis upon request. Considerations for determining that a replacement or

amended eligible debt security is not substantially different from the original security

from an economic perspective could include, but are not limited to, whether the

replacement or amended instrument has amended terms beyond those relevant to

implementing the new reference rate or rate structure.

4) Exchange offers ofeligible debt securitiesfor LIBOR replacementpurposes

Question: May a global systemically important BHC (GSIB) conduct an exchange or

tender offer for securities issued by the top-tier GSIB directly with third party holders in

order to facilitate the GSIB's transition away from U.S. dollar (USD) LIBOR?

Answer: The Board encourages GSIBs to transition away from USD LIBOR as soon as

practicable, and in any event by December 31, 2021. If a GSIB's exchange offer of

securities issued by the top-tier GSIB directly to third party holders would facilitate such [continued on the next page]
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a transition, and is subject to appropriate limitations, such a transaction would not be 

inconsistent with the purposes of Subpart G of the Board's Regulation YY to enhance

GSIB resolvability. Therefore, staff would not recommend that the Board take an 

enforcement action if a GSIB were to enter into such a transaction where the following

conditions are satisfied:

1. The exchange offer will occur prior to the date that the relevant USD LIBOR tenor ceases

to be published or becomes nonrepresentative and is for the purpose of exchanging 

legacy securities to facilitate the transition of the GSIB away from USD LIBOR;

2. Under the exchange offer, the period for which the GSIB will be subject to a legal

obligation to settle a contract with tendering holders will be five business days or less;

3. The amount of securities covered by the exchange offer will not exceed the lesser of 5 

percent of the GSIB's total risk-weighted assets and 2.5 percent of the GSIB's total

leverage exposure; and

4. The GSIB will be well capitalized and in compliance with the Board'sliquidity coverage

ratio rule at the time the GSIB commences the exchange offer.
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FAQ Topics - CoveredIHCs, Subpart P ofRegulation YY:

1) Exchange offers ofeligible coveredIHC debt securitiesfor LIBOR replacementpurposes

Question: If a covered IHC exchanges or amends an “eligible covered IHC debt

security” (12 CFR 252.161) to transition from the London Interbank Offered Rate

(LIBOR) to another reference rate or rate structure, would that be considered an issuance

of a new debt security for purposes ofthe eligibility criteria for the TLAC rule or a

continuation ofthe original “eligible covered IHC debt security”?

Answer: For purposes of Subpart P ofthe Board's Regulation YY, if a covered IHC

conducts an exchange of eligible covered IHC debt securities or amends such securities'

terms in order to replace outstanding debt securities that reference LIBOR with debt

securities that contain a substantially equivalent reference rate or other rate structure, and

no other changes are made to the debt securities, the replacement or amended debt

securities are not considered newly issued debt securities. The Covered IHC may treat

the replaced or amended debt securities as ifthey were the originally outstanding debt

securities that referenced LIBOR, rather than treating the debt securities as new debt

securities issued on the date ofthe exchange or amendment. In this case, for purposes of

Subpart P ofthe Board's Regulation YY, the exchanged or amended debt securities

would retain the maturity ofthe original eligible covered IHC debt securities.

A covered IHC that exchanges an eligible covered IHC debt security or amends such

security's terms to transition from LIBOR should support its determination with an

appropriate analysis that demonstrates that the replacement or amended security is not

substantially different from the original security from an economic perspective. The

Board may ask the covered IHC to provide the analysis upon request. Considerations for

determining that a replacement or amended eligible covered IHC debt security is not

substantially different from the original security from an economic perspective could

include, but are not limited to, whether the replacement or amended instrument has

amended terms beyond those relevant to implementing the new reference rate or rate

structure.

2) Exchange offers ofeligible coveredIHC debt securitiesfor LIBOR replacementpurposes

Question: May a resolution covered IHC conduct an exchange or tender offer for

securities issued by the resolution covered IHC directly with third party holders in order

to facilitate the resolution covered IHC's transition away from U.S. dollar (USD)

LIBOR?

Answer: The Board encourages covered IHCs to transition away from USD LIBOR as

soon as practicable, and in any event by December 31, 2021. If a covered IHC's

exchange offer ofsecurities issued by the top-tier covered IHC directly to third party

holders would facilitate such a transition, and is subject to appropriate limitations, such a [continued on the next page]
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transaction would not be inconsistent with the purposes of Subpart P of the Board's

Regulation YY to enhance covered IHC resolvability. Therefore, staff would not

recommend that the Board take an enforcement action if a covered IHC were to enter into

such a transaction where the following conditions are satisfied:

1. The exchange offer will occur prior to the date that the relevant USD LIBOR tenor ceases

to be published or becomes nonrepresentative and is for the purpose of exchanging 

legacy securities to facilitate the transition of the GSIB away from USD LIBOR;

2. Under the exchange offer, the period for which the covered IHC will be subject to a legal

obligation to settle a contract with tendering holders will be five business days or less;

3. The amount of securities covered by the exchange offer will not exceed the lesser of 5 

percent of the covered IHC's total risk-weighted assets and 2.5 percent of the covered

IHC's total leverage exposure; and

4. The covered IHC will be well capitalized and, if applicable, in compliance with the

Board'sliquidity coverage ratio rule at the time the covered IHC commences the

exchange offer.