In a joint statement, the Federal Reserve Board, the CFPB, the FDIC, the National Credit Union Administration and the OCC, as well as state bank and credit union regulators, emphasized the importance of continued progress in transitioning away from LIBOR. The regulators warned that "failure to adequately prepare for LIBOR's discontinuance could undermine financial stability and institutions' safety and soundness and create litigation, operational, and consumer protection risks."

In the statement, the regulators reiterated that firms should cease entering into new USD LIBOR-referencing contracts "as soon as practicable, but no later than December 31, 2021." For this purpose, the regulators clarified that a "new contract" "would include an agreement that (i) creates additional LIBOR exposure for a supervised institution or (ii) extends the term of an existing LIBOR contract" (while continuing to recognize previously stated exceptions for post-2021 "new" contracts, such as hedging and market making). In addition, the regulators stated that a "draw on an existing facility that is legally enforceable (e.g., a committed credit facility) would not be viewed as a new contract."

The statement details that contracts entered into prior to 2022 should use a non-USD LIBOR reference rate or include fallback language that provides for use of a "strong and clearly defined alternative reference rate" after LIBOR discontinuation. The regulators cautioned that a supervised institution should understand the "fragilities" associated with a reference rate and the markets that underlie it.

Commentary - Nihal Patel

Much of this statement repeats and emphasizes previous regulatory statements, though the indication of what constitutes a "new" contract for purposes of guidance for post-2021 USD LIBOR activity is notable. The statement confirms what Federal Reserve Board Vice Chair Randal Quarles signaled two weeks ago and adds that draws on committed credit facilities will not be considered to be "new" contracts.

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