Prepare Now for Libor Cut-Off, Regulators Warn
No new exposures to the legacy lending reference rate will be permitted after December 31
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- Written by Banking Exchange staff
US regulators will not permit any new Libor exposures after December 31 this year, according to the Office for the Comptroller of the Currency (OCC).
Libor, or the London interbank offered rate, has been phased out over the past few years to be replaced by the secured overnight financing rate (SOFR) or other approved rates for the pricing of loans and other financial products.
However, OCC acting comptroller Michael Hsu warned that some people banks may have been dragging their heels on preparing for a Libor replacement, believing that the rate will survive in some form past the end of the year. He said that the OCC and other agencies would not permit “new Libor exposures – zombie or otherwise – after December 31 2021, and we mean it”.
“At this point in the timeline, the OCC expects every bank to be executing upon a comprehensive plan to address the effects of Libor cessation that is tailored to the bank’s particular exposure to Libor under its current business model, risk profile and strategic plan,” Hsu said.
Any complacency could “have a profound negative effect on bank operations, safety, and soundness”, Hsu continued. He said banks of all sizes and kinds can be exposed to Libor in many ways, either directly through financial instruments or via third parties, and encouraged banks to be thorough in reviewing existing and new business.
New York Fed senior vice president Nathaniel Wuerffel said in a speech earlier this week that the central bank was “seeing progress” in the transition away from Libor across consumer lending and business loans, as well as other activities.
“For those firms still entering new dollar Libor contracts, my strong recommendation is this: act now to prepare for the end of Libor,” Wuerffel said. “Do not wait until December to move to alternative rates.”
Tagged under Compliance, Compliance Management, Compliance/Regulatory, Consumer Compliance, Feature3, Feature,
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