economy
December 13, 2021
As Libor Transition Nears, Are You Ready for the Change?
One-week and two-month U.S. dollar (USD) Libor settings will cease to be published after Dec. 31, 2021. The remaining settings (one, three, six and 12 months) will continue to be published through the end of June 2023.
In mid-October, a number of federal and state financial regulators issued a joint statement regarding the phaseout of Libor, encouraging market participants to “continue to progress toward an orderly transition away from Libor.” They emphasized the importance of proper preparation for the transition to mitigate a number of risks, including undermining financial stability and creating potential litigious, operational and consumer protection issues for individual institutions. Importantly, regulators added that supervisory focus and review will continue to increase as the Libor sunset date draws near, and institutions with a comprehensive and proactive approach will be better prepared.
New Contracts Should Not Use USD Libor as of Dec. 31, 2021
Although certain USD Libor settings will be available until June 30, 2023, all market participants are encouraged to cease using USD Libor in any form or tenor in any new contracts after Dec. 31, 2021. Any new contracts that reference USD Libor after Dec. 31, 2021, would create safety and soundness risks and, therefore, will no longer be permitted after such date. Based on this guidance, advances under existing USD Libor agreements for committed credit facilities may continue to be utilized.
Any contract that references USD Libor and that matures after the relevant USD Libor sunset date (June 30, 2023, for most cases) should be modified, as needed, to prepare for the transition away from USD Libor. New contracts executed between now and Dec. 31, 2021, should reference a rate that is not based on USD Libor (for example Term SOFR) or include a robust USD Libor fallback mechanism that provides a “strong and clearly defined” alterative reference rate.
Contact your regional vice president if you have any questions on the Libor transition or the Libor replacement languages in your agreements.
Watch the Libor Transition Webinar Replay
CFC Vice President of Asset Liability Management Matthew Wade and CFC Senior Corporate Counsel James Jablonski joined CFC moderators in a recent webinar to discuss the transition and provide insights on recent market developments that are shaping the post-Libor world.
Members can watch a replay of the webinar by visiting the CFC Member Website then going to the Past Events page under the Events/Training section and then clicking on the Watch Past Webinars link.