OCC publishes self-assessment tool for banks to evaluate their LIBOR transition readiness

A self-assessment tool banks can use to evaluate their preparedness for the expected cessation of the London Interbank Offered Rate (LIBOR) as a reference rate for products and services was released Wednesday by the Office of the Comptroller of the Currency (OCC).

The agency, in Bulletin 2021-7, said the tool can be used to assess the appropriateness of the bank’s LIBOR transition plan, bank management’s execution of the plan, and related oversight and reporting.

The tool is meant to provide banks a way to evaluate their risk management processes to identify and mitigate LIBOR transition risks, the agency said. It added that not all sections or questions provided in the tool will apply to all banks.

“Bank management should tailor the bank’s risk management process to the size and complexity of the bank’s Libor exposures,” it said in the bulletin. “For example, large or complex banks and those with material Libor exposures should have a robust, well-developed transition process in place. In contrast, for small or non-complex banks and those with limited exposure to Libor-indexed instruments, less extensive and less formal transition efforts may be appropriate. Bank management should consider all applicable risks (e.g., operational, compliance, strategic, and reputation) when scoping and completing Libor cessation preparedness assessments.”

The OCC reiterated the expectation for banks to cease entering into new contracts that use LIBOR as a reference rate by Dec. 31, 2021, and said bank management should assess whether the bank’s progress with preparedness is sufficient.

“For example, in 2021, Libor exposure and risk assessments and cessation preparedness plans should be at least near completion with appropriate management oversight and reporting in place,” the agency wrote. “Most banks should be working toward resolving replacement rate issues while communicating with affected customers and third parties, as applicable.”

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