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).
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 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). On January 14, 2021, the OCC obtained prior
approval for use of the above-mentioned self-assessment tool on. We
are now requesting authorization to add additional questions to the
tool. The purpose of the new questions is to further emphasize that
the alternative rates selected by the supervised institutions
should be robust and appropriate for their risk. 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 the additional questions to be added to the
self-assessment tool due to the immediate need and the brief
duration of use to help banks prepare for Libor-related risk. The
OCC has determined that: (1) the collection of information within
the scope of this request is needed prior to the expiration of time
periods established under 5 C.F.R. § 1320.12; (2) this collection
of information is essential to the mission of the OCC; and (3) the
OCC cannot reasonably comply with the normal clearance procedures
because an unanticipated event has occurred and the use of normal
clearance procedures is reasonably likely to prevent or disrupt the
collection of information. This information collection may not be
cleared through 5 C.F.R. § 1320.11, which covers only collections
of information contained in proposed rules. As noted in 5 C.F.R. §
1320.5(c)(1), the OCC must clear the collection under 5 C.F.R. §
1320.10, which relates to information collections not contained in
proposed rules or current rules. There is insufficient time to
obtain clearance under 5 C.F.R. § 1320.10 as the collection is
needed immediately and will not be used after December 31, 2021.
Therefore, the OCC is requesting emergency clearance.
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 Tool - Letter to OMB - 8-30-21 TJD.docx
Libor Self-Assessment Tool