The Mentor Journal
Bond Markets
Here’s a Simple Tool to Help with Your Bank’s LIBOR Transition
LIBOR Transition
By Chris Nelson
November 5, 2021
Reading Time: 2 minutes

As we continue toward the eventual retirement of LIBOR as a benchmark, I’ve been having more conversations with clients and other community bankers about the LIBOR transition.  The amount of effort needed to prepare for the LIBOR benchmark going away varies, depending on how much of a role the index plays in operations.

The Office of the Comptroller of the Currency (OCC) recently released an updated LIBOR self-assessment tool to help banks evaluate how prepared they are for LIBOR’s retirement. It’s in the form of a checklist, allowing you to gauge your progress quickly. 

The checklist tool covers four primary areas of consideration:

  • Exposure Assessment & Planning – This section helps you develop and evaluate the LIBOR transition plan for your community financial institution, along with factors to consider.
  • Replacement Rates – What replacement rate has your bank decided to use?  While none of the regulators have endorsed a specific replacement benchmark, they expect institutions to identify what they’ll be using in LIBOR’s place.  Some examples I’ve discussed with clients have included SOFR, Prime, Ameribor, and BSBY.
  • Fallback Language – Reviewing new and existing contracts and notes is a critical part of the LIBOR transition process.  It also has the potential to require more work, especially if you have to review and modify a more significant number of documents.
  • Progress & Oversight – How is your bank doing in its progress toward transitioning away from LIBOR?  The amount of effort will be based on the size and complexity of your bank’s LIBOR exposure.

Even if the OCC is not your regulator, their self-assessment checklist is a helpful tool to review your bank’s preparedness.  You can download a copy of the tool here.  And you can read the OCC’s bulletin here.  And of course, if you have any questions about the LIBOR transition for your institution and I can help, please reach out.

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