The expected cessation of the London
InterBank Offered Rate (Libor) by the end of 2021 prompted the OCC
to create a self-assessment tool that banks may use in preparing
for the expected Libor cessation. The self-assessment tool may be
used when a bank is assessing the appropriateness of its Libor
transition plan, execution of the plan by its management, and
related matters. The Intercontinental Exchange Libor is a reference
rate that is intended to reflect the cost of unsecured interbank
borrowing. Libor is published daily in five currencies with seven
maturities ranging from overnight to 12 months. It is used globally
in the over-the-counter derivatives market, bonds, loan products,
and securitizations. As of the end of 2016, $199 trillion of
financial instruments were exposed to U.S. dollar (USD) Libor as
the primary reference rate. While reference rates have ceased to be
reported in the past, the significant exposure to Libor creates the
need to assess whether a bank is identifying applicable risks,
preparing for the cessation, and successfully transitioning to
replacement rates. Libor is referenced globally, and its cessation
could affect banks of all sizes through direct or indirect
exposure. There is risk of market disruptions, litigation, and
destabilized balance sheets if acceptable replacement rate(s) do
not attract sufficient market-wide acceptance, or if contracts
cannot seamlessly transition to new rate(s). A bank’s risk exposure
from expected Libor cessation depends on the bank’s specific
circumstances. Many community banks may not offer products or
services that use Libor. Community banks could, however, have Libor
exposure in such positions as Federal Home Loan Banks (FHLB)
borrowings, mortgage-backed securities, or bonds in the banks’
investment portfolios. Libor exposure can exist on or off the
balance sheet, including assets, liabilities, , and asset
management activities. Risk can also emanate from third-party
relationships because Libor is often used in pricing models,
financial models, and other parts of banks’ infrastructure, such as
core processing. The ubiquity of LIBOR, present in over $200T
notional contracts, makes moving off the rate incredibly
complicated. Many existing contracts do not include sufficient
provisions in the event that Libor becomes unavailable (known as
fallback provisions). Without preparation, Libor cessation could
cause market disruption and present risks to banks and their
customers. In addition, the fallback language does not sufficiently
account for a permanent cessation of LIBOR. The banking agencies
published a statement dictating that banks should discontinue
making LIBOR exposure by the end of 2021, but as soon as
practicable (with a few exceptions for orderly market support).
Given that we expect banks to discontinue making LIBOR loans by
this year end, the prevalence of LIBOR and the remaining work to be
done within the timeframe described above, the OCC is requesting
emergency clearance for this self-assessment tool to be made
available to banks due to the immediate need and the brief duration
of use, to help banks prepare for Libor related risk.
The expected cessation
of the London Interbank Offered Rate (Libor) by the end of 2021
prompted the OCC to create a self-assessment tool for use by banks
in preparing for the expected Libor cessation. There is a risk of
market disruptions, litigation, and destabilized balance sheets if
acceptable replacement rate(s) do not attract sufficient
market-wide acceptance or if contracts cannot seamlessly transition
to new rate(s). The ubiquity of LIBOR, present in over $200T
notational contracts, makes moving off the rate incredibly
complicated. Many existing contracts do not include sufficient
provisions in the event that Libor becomes unavailable. Without
preparation, Libor cessation could cause market disruption and
present risks to banks and their customers. Given that we expect
banks to discontinue making LIBOR loans by this year end, the
prevalence of LIBOR and the remaining work to be done within the
timeframe described above, the OCC is requesting emergency
clearance for this self-assessment tool to be made available to
banks due to the immediate need and the brief duration of used, to
help banks prepare for Libor related risk.
The increase in burden is due
to the creation of the Libor self-assessment.
No
No
No
No
No
No
No
Christopher McBride 202
649-6402
No
On behalf of this Federal agency, I certify that
the collection of information encompassed by this request complies
with 5 CFR 1320.9 and the related provisions of 5 CFR
1320.8(b)(3).
The following is a summary of the topics, regarding
the proposed collection of information, that the certification
covers:
(i) Why the information is being collected;
(ii) Use of information;
(iii) Burden estimate;
(iv) Nature of response (voluntary, required for a
benefit, or mandatory);
(v) Nature and extent of confidentiality; and
(vi) Need to display currently valid OMB control
number;
If you are unable to certify compliance with any of
these provisions, identify the item by leaving the box unchecked
and explain the reason in the Supporting Statement.
Libor Self-Assessment Tool
Libor Self-Assessment Emergency Request Letter to OMB 1-12-21.docx
Libor Self-Assessment Tool