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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551 

DIVISION OF SUPERVISION

AND REGULATION

SR 21-12 

July 29, 2021 

Revised November 19, 

2021 

In November 2021, this letter was revised to provide additional frequently asked questions in 

response to questions from institutions regarding the transition away from using LIBOR as a 

reference rate. The updated FAQs, together with the FAQs issued in July 2021, are attached 

to this letter.

TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE 

SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK 

AND INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE

SUBJECT: Answers to Frequently Asked Questions on the Transition Away from London 

Interbank Offered Rate (LIBOR) 

Applicability: This guidance applies to all financial institutions supervised by the Federal 

Reserve, including those with $10 billion or less in consolidated assets

The Federal Reserve is issuing frequently asked questions (FAQs) to assist its supervised firms 

in the transition away from using the LIBOR as a reference rate. 

This letter announces the initial set of FAQs on this topic, which are included in the attachment 

to this letter. The Federal Reserve may periodically update the FAQ document; therefore, 

institutions are encouraged to check the Board’s public website for new FAQs or revisions to a 

previously issued FAQs. 

Reserve Banks are asked to distribute this letter to the supervised firms in their districts and to 

appropriate supervisory staff. In addition, supervised firms may send questions regarding this 

topic via the Board’s public website.1

1 See http://www.federalreserve.gov/apps/contactus/feedback.aspx
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Michael S. Gibson

Director

Division of

Supervision and Regulation

 

Attachments 

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

LIBOR (Effective July 29, 2021) 

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

LIBOR (Effective November 19, 2021)
Attachment to SR Letter 21-12 

1 

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

LIBOR

Effective July 29, 2021 

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 of the eligibility criteria for regulatory capital? 

Answer: The Board of Governors of the 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 of the capital rule. If changes in the 

terms of the 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 of the eligibility 

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

replacement or amended instrument would retain the maturity of the 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 of the 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)? 
Attachment to SR Letter 21-12 

2 

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 of the 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. 
Attachment to SR Letter 21-12 

3 

Total Loss-Absorbing Capacity (TLAC) FAQs on LIBOR transition

FAQ Topics – U.S. GSIBs, Subpart G of Regulation YY: 

3) Exchange or amendment of eligible debt securities 

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 of the eligibility criteria for the TLAC rule

or a continuation of the original “eligible debt security”?

Answer: For purposes of Subpart G of the 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 if they were the originally outstanding debt securities that referenced 

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

of the exchange or amendment. In this case, for purposes of Subpart G of the 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 of eligible debt securities for LIBOR replacement purposes

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 
Attachment to SR Letter 21-12 

4 

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’s liquidity coverage 

ratio rule at the time the GSIB commences the exchange offer. 
Attachment to SR Letter 21-12 

5 

FAQ Topics – Covered IHCs, Subpart P of Regulation YY: 

1) Exchange offers of eligible covered IHC debt securities for LIBOR replacement purposes

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 of the eligibility criteria for the TLAC rule or a 

continuation of the original “eligible covered IHC debt security”?

Answer: For purposes of Subpart P of the 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 if they were the originally outstanding debt 

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

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

Subpart P of the Board’s Regulation YY, the exchanged or amended debt securities 

would retain the maturity of the 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 of eligible covered IHC debt securities for LIBOR replacement purposes

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 of securities 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 
Attachment to SR Letter 21-12 

6 

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’s liquidity coverage ratio rule at the time the covered IHC commences the 

exchange offer. 
Attachment to SR Letter 21-12

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

Effective November 19, 2021

Supervision FAQs on the Transition away from LIBOR 

1. After December 31, 2021, would supervisors view a modification to a LIBOR-referenced adjustable-rate 

mortgage as a new contract?

Supervisors would not view a modification to a LIBOR-referenced adjustable-rate mortgage as a new contract unless 

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

2. If a loan contract will automatically renew after December 31, 2021, would this be viewed as a new contract? 

Yes, the automatic renewal of the loan would be viewed as a new contract because it would extend the term of an 

existing LIBOR contract. A Board-supervised institution should take steps to address such automatic renewals. 

3. Would the physical settlement of a contract that existed prior to year-end 2021 (e.g., a swaption) be viewed as a 

new contract?

No, this would not be viewed as a new contract. 

4. Would it be appropriate for Board-supervised institutions to enter into any new LIBOR contracts after 

December 31, 2021? 

As stated in SR Letter 20-27 and SR Letter 21-17, 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. 

A Board-supervised institution should have reasonable measures in place to assess whether a new USD LIBOR 

contract would be consistent with safety and soundness practices. These measures should align with the institution’s 

existing risk management processes.

5. After December 31, 2021, would it be appropriate for Board-supervised institutions to engage in secondary 

trading of LIBOR-linked cash instruments issued prior to year-end 2021?

Yes, it would be appropriate to engage in secondary trading of LIBOR-linked instruments issued prior to December 

31, 2021. 

6. Should Board-supervised institutions include fallback language in LIBOR contracts entered into on or before 

December 31, 2021? 

As stated in SR Letter 21-17, LIBOR 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. Such fallback language will ensure there are no 
Attachment to SR Letter 21-12

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disagreements between the parties to a LIBOR contract about how to calculate interest when LIBOR is no longer 

available. 

7. How will examiners assess Board-supervised institutions’ LIBOR transition planning? Will supervisors issue 

MRAs and take other supervisory actions in connection with the LIBOR transition?

Consistent with SR Letter 21-7, examiners first assess whether a Board-supervised institution has exposure to LIBOR. 

For institutions with LIBOR exposure, examiners have focused on (1) transition planning; (2) financial exposure 

measurement and risk assessment; (3) operational preparedness and controls; (4) legal contract preparedness; (5) 

communication; and (6) oversight. 

Board-supervised institutions that are not making adequate progress toward transitioning away from LIBOR could 

create safety and soundness risks for themselves and for the financial system. Accordingly, examiners will consider 

issuing supervisory findings and other supervisory actions if a firm is not making adequate progress.