Regulatory AlertsSR 20-25: Interagency Statement – Reference Rates for Loans
The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued a statement clarifying that they do not endorse a specific replacement rate for LIBOR for loans. Banks are encouraged to determine appropriate reference rates based on their funding models and customer needs while accelerating outreach to prepare customers for the transition. Institutions must include robust fallback language in lending contracts and consider technical changes to internal systems to accommodate new or fallback reference rates.
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SR 20-25: Interagency Statement – Reference Rates for Loans
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
signed by Michael S. Gibson Director Division of Supervision and Regulation
Attachments:
Interagency Statement – Reference Rates for Loans
Notes:
See http://www.federalreserve.gov/apps/contactus/feedback.aspx . Return to text.
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Last Update: November 06, 2020