OCC Issues Updated Self-Assessment Tool for Banks to Evaluate Preparedness for LIBOR Cessation | Practical Law

OCC Issues Updated Self-Assessment Tool for Banks to Evaluate Preparedness for LIBOR Cessation | Practical Law

The OCC rescinded Bulletin 2021-7, which provided a self-assessment tool for banks, and issued Bulletin 2021-46, which replaced the self-assessment tool for banks to evaluate their preparedness for the cessation of LIBOR.

OCC Issues Updated Self-Assessment Tool for Banks to Evaluate Preparedness for LIBOR Cessation

by Practical Law Finance
Published on 27 Oct 2021 • USA (National/Federal)
The OCC rescinded Bulletin 2021-7, which provided a self-assessment tool for banks, and issued Bulletin 2021-46, which replaced the self-assessment tool for banks to evaluate their preparedness for the cessation of LIBOR.
On October 18, 2021, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2021-46, which rescinded Bulletin 2021-7, published in February 2021 (see Legal Update, OCC Issues Self-Assessment Tool for Banks to Evaluate Preparedness for LIBOR Cessation), and replaced the self-assessment tool provided to banks to evaluate their preparedness for the cessation of LIBOR. According to the Bulletin, banks are expected "to demonstrate that their LIBOR replacement rates are robust and appropriate for their risk profile, nature of exposures, risk management capabilities, customer and funding needs, and operational capabilities."
The updated self-assessment tool intends to assess replacement rates' robustness and provides questions for banks to consider in the areas of:
  • Exposure assessment and planning.
  • Replacement rates.
  • Fallback language.
  • Progress and oversight.
The self-assessment tool is intended to assist banks in evaluating their risk-management processes, which, according to the OCC, should be tailored to the size and complexity of a bank's LIBOR exposures. Additionally, the OCC directs bank management to:
  • Continually monitor the rates it uses for uninterrupted availability.
  • Have an internal process to assess a rate's availability and to prepare the bank to transition to a different rate if necessary. New or modified financial contracts should have fallback language that permits efficient rate replacement.
The OCC expects banks to cease entering into new contracts that use LIBOR as a reference rate as soon as practicable and no later than December 31, 2021. Therefore, when assessing preparedness:
  • Bank management should ensure that LIBOR exposure and risk assessments and cessation preparedness plans should be either complete or near completion and include appropriate management oversight and reporting.
  • Banks should also be working to resolve replacement rate issues while communicating with affected customers and third parties.