Attorney Published Article
Federal Agencies Issue Statement on LIBOR Transition
On 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) issued a Statement encouraging banks to transition away from U.S. dollar (USD) LIBOR as soon as practicable. The agencies stated that failure to prepare for disruptions to LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks’ safety and soundness. The agencies advised that any new contracts entered into before December 31, 2021, should either utilize an alternative reference rate other than LIBOR or provide robust fallback language that identifies an alternative reference rate after LIBOR’S discontinuation.
The LIBOR transition is a significant transition event for a number of banks, lenders, and other financial services providers as many products and services are tied to LIBOR as a reference rate. The agencies’ joint statement continues a trend of agency statements on the LIBOR transition and appropriate alternative reference rates as we approach the planned discontinuation of the one week and two month USD LIBOR settings on December 31, 2021, and the remaining USD LIBOR settings on June 30, 2023. This statement closely follows the agencies’ November 6, 2020 statement reiterating that they are not endorsing a specific replacement reference rate. These two statements suggest that the agencies wish to create a sense of urgency about the LIBOR transition while still providing banks some flexibility in how to execute that transition.
Reprinted with permission from the American Bar Association’s Business Law Today December Month-In-Brief: Business Regulation & Regulated Industries.