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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION

AND REGULATION

SR 20-25

November 6, 2020

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: Interagency Statement – Reference Rates for Loans

Applicability: This letter applies to all institutions supervised by the Federal Reserve.

On November 6, 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) issued a statement that reiterates that they are not endorsing a specific replacement 

rate for LIBOR for loans. A bank may use any reference rate for its loans that the bank 

determines to be appropriate for its funding model and customer needs. However, the bank 

should include fallback language in its lending contracts that provides for use of a robust fallback 

rate if the initial reference rate is discontinued.

The statement encourages banks to determine appropriate reference rates for lending 

activities and begin transitioning loans away from LIBOR without delay. The statement also 

encourages banks to accelerate outreach to lending customers to ensure that they are aware of, 

and prepared for, the transition from LIBOR. Finally, the statement encourages banks to 

consider any technical changes that might be required for internal systems to accommodate new 

reference rates or fallback rates. 

Reserve Banks are asked to distribute this letter to the supervised organizations in their 

districts and to appropriate supervisory staff. In addition, institutions may send questions via the 

Board’s public website.1

Michael S. Gibson

Director

Division of

1 See http://www.federalreserve.gov/apps/contactus/feedback.aspx
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Supervision and Regulation

Attachments: 

Interagency Statement – Reference Rates for Loans
Board of Governors of the Federal Reserve System 

Federal Deposit Insurance Corporation 

Office of the Comptroller of the Currency

Statement on Reference Rates for Loans

November 6, 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 reiterate that they are not endorsing a specific replacement rate for 

LIBOR for loans. A bank may use any reference rate for its loans that the bank determines to be

appropriate for its funding model and customer needs.

1

 However, the bank should include 

fallback language in its lending contracts that provides for use of a robust fallback rate if the 

initial reference rate is discontinued.

Background and Discussion

As discussed in the recent FFIEC “Joint Statement on Managing the LIBOR Transition,”2

new 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. 

The Alternative Reference Rates Committee (ARRC), a group of private-market participants 

convened to help ensure a successful transition from LIBOR, recommended the Secured 

Overnight Financing Rate (SOFR) as its preferred alternative for both cash and derivative 

transactions.

3

 The use of SOFR is voluntary.4

The agencies recognize that banks’ funding models differ and that in structuring their 

lending activities it is appropriate for banks to select suitable replacement rates for LIBOR that 

are most appropriate given their specific circumstances. This may include using credit-sensitive 

alternatives to LIBOR. Banks should assess the appropriateness of alternative reference rates in 

light of their funding costs and their customers’ needs. Additionally, banks should include 

fallback language that provides for the use of a robust fallback rate if the initial reference rate is 

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. 2

 https://www.ffiec.gov/press/PDF/FFIEC%20Statement%20on%20Managing%20the%20LIBOR%20Transition.pdf. 3 SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The 

Federal Reserve Bank of New York publishes SOFR on its website each day at approximately 8:00 a.m. eastern 

time. 

4 Some banks have noted that SOFR is a near-risk-free rate and does not reflect banks’ underlying funding costs. 

These banks have advocated for the development of a credit-sensitive rate or a credit-sensitive spread that could 

be added to SOFR to better reflect banks’ funding costs. The official sector recently held a series of workshops 

with banks and borrowers to discuss potential credit-sensitive alternatives to the use of SOFR for loan products. 

See https://www.newyorkfed.org/newsevents/events/markets/2020/0225-2020. 
discontinued. Fallback language can help protect banks and their customers from disruptions in 

the availability of reference rates. 

All institutions should have risk management processes in place to identify and mitigate 

their LIBOR transition risks that are commensurate with the size and complexity of their 

exposures. Examiners will not criticize banks solely for using a reference rate, including a creditsensitive rate, other than SOFR for loans.

Prompt action encouraged

The agencies encourage banks to determine appropriate reference rates for lending 

activities and begin transitioning loans away from LIBOR without delay. The agencies also 

encourage banks to accelerate outreach to lending customers to ensure that they are aware of, and 

prepared for, the transition from LIBOR. Finally, the agencies encourage banks to consider any 

technical changes that might be required for internal systems to accommodate new reference 

rates or fallback rates.