CSBS Issue Talking Points - March 2021

LIBOR Transition

CSBS Position Financial institutions should be prepared for the end of the London Inter-bank Offered Rate (LIBOR) by stopping the use of LIBOR in new transactions after Dec. 31, 2021. All contracts that reference LIBOR should have fallback language for when LIBOR is no longer available. Summary U.K. and U.S. regulators have announced that LIBOR will no longer be published after June 30, 2023. Financial institutions should have prepared for that event well in advance of the end date by identifying and quantifying all uses of LIBOR and remediating any contracts as necessary. The U.S. bank regulators have announced that all financial institutions should stop using LIBOR in new transactions as soon as practicable and in any event by Dec. 31, 2021 to avoid risks to safety and soundness. New contracts written before Dec. 31, 2021 should either use a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation. Why It Matters to State Regulators LIBOR is used in many financial products, from adjustable-rate mortgages to trust preferred securities. Institutions will need to work with counterparties and service providers to avoid operational, financial, and consumer protection risks. Litigation and reputation risk could be substantial for an institution that does not adequately prepare. CSBS has issued three LIBOR fact sheets: • Fact Sheet, June 2018 raises awareness of the issue • Fact Sheet II, February 2019 discusses fallback language and AARC activities • Fact Sheet III, October 2019 includes a checklist for financial institutions and a companion job aid for examiners to use when evaluating how an institution is managing the transition Timeline • The Financial Stability Oversight Council recommended that regulators and market participants identify alternative benchmarks in 2014, and the Alternative Reference Rates Committee (ARRC) was established in response. • The Future of LIBOR speech by Andrew Bailey of the UK Financial Conduct Authority (FCA) in July 2017 announced the end of LIBOR www.fca.org.uk/news/speeches/the-future-of-libor • FFIEC issued a statement July 2, 2020 that highlights the risks that will result from the transition away from LIBOR, and encouraged supervised institutions to continue their efforts to transition to alternative reference rates in order to mitigate risks • The UK authority that publishes LIBOR - the Intercontinental Exchange (ICE) - announced on Nov. 30, 2020 its intention to cease the publication of one week and two-month LIBOR on Dec. 31, 2021. The other tenors of U.S. dollar LIBOR: overnight and one, three, six and twelve- month US dollar LIBOR will continue to be published until June 30, 2023. • Also on Nov. 30, 2020 the ICE Benchmark Administration (IBA) and the FCA issued announcements about the proposed path forward for the transition away from U.S. dollar

FOR STATE REGULATOR USE ONLY