On February 10, 2021, the Office of the Comptroller of the Currency (the “OCC”) published OCC Bulletin 2021-7, Libor Transition: Self-Assessment Tool for Banks, in order to help OCC-regulated financial institutions to identify and mitigate risks related to preparedness for the expected cessation of the London InterBank Offered Rate (“LIBOR”).
A checklist styled Self-Assessment Tool accompanies the Bulletin and consists of 37 questions across four general subject areas that each have one or more overarching questions as an objective.
- Exposure Assessment and Planning
- Objective #1 – Is the bank managing LIBOR cessation from an appropriately detailed transition plan commensurate with the size and complexity of LIBOR exposures?
- Objective #2 – Does the bank have appropriate processes in place to implement LIBOR transition plans?
- Replacement Rates
- Objective #1 – Did management plan for and identify appropriate replacement rates and spread adjustment methodologies?
- Fallback Language
- Objective #1 – Did management plan for and take sufficient actions to ensure the appropriateness of fallback language in both existing contracts and new contracts?
- Progress and Oversight
- Objective #1 – Is progress toward LIBOR cessation preparedness sufficient given the size and complexity of risk exposures?
In the Bulletin, the OCC clarified that not every subject area or question would apply to every bank, and that each bank should tailor its risk management process to the size and complexity of its LIBOR exposures.
The Bulletin represents the fourth in a series of OCC bulletins to address LIBOR transition planning:
- OCC Bulletin 2020-68, “Libor Transition: FFIEC Statement on Managing the Libor Transitions and Guidance for Banks”;
- OCC Bulletin 2020-98, “Libor Transition: Interagency Statement on Reference Rates for Loans”; and
- OCC Bulletin 2020-104, “Libor Transition: Joint Statement on U.S. Dollar Libor Transition”.
Good day. Good, always, to have checklists…especially from a regulator. DR2