U.S. Banking Regulators Issue Statement That Banks Should Nonetheless Cease Entering Into LIBOR Contracts as Soon as Practicable and, in Any Event, No Later Than Dec. 31, 2021
On Nov. 30, 2020, Intercontinental Exchange, Inc. announced that ICE Benchmark Administration Limited (IBA) is proposing the cessation of the publication of the one-week and two-month U.S. dollar LIBOR on Dec. 31, 2021, and the publication of overnight and one-, three-, six- and 12-month U.S. dollar LIBOR on June 30, 2023. IBA is the entity that administers the calculation and setting of LIBOR rates for various currencies and periods. This follows IBA's announcement on Nov. 18, 2020, of its plans to cease publishing euro, sterling, Swiss franc, and yen LIBOR on Dec. 31, 2021.
The IBA announcement is available here.
In another note, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation simultaneously released a statement encouraging banks "to transition away from U.S. dollar LIBOR as soon as practicable." The banking agencies noted that extending the publication of certain U.S. dollar LIBOR tenors until June 30, 2023, would allow most legacy U.S. dollar LIBOR contracts to mature before LIBOR experiences disruptions. Failure to prepare for disruptions to U.S. dollar LIBOR, including operating with insufficiently robust fallback language, could undermine financial stability and banks' safety and soundness. The banking agencies stated that entering into new contracts that use U.S. dollar LIBOR as a reference rate after Dec. 31, 2021, would create safety and soundness risks and that they will examine bank practices accordingly. Specifically, they suggested that banks cease entering into U.S. dollar LIBOR contracts as soon as practicable and, in any event, no later than Dec. 31, 2021. They also noted that new contracts entered into before Dec. 31, 2021, should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation.
The statement is available here.
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