In the Winter 2018 issue of Supervisory Insights, the FDIC provided information to help financial institution management navigate a potential transition away from LIBOR.
In an article titled "Transitions in Financial Instrument Reference Rates," the FDIC advised institutions to go beyond simply selecting interest rates and instead to focus on evaluating the impact of the risks associated with a potential transition in reference rates with regard to areas such as information technology, management information systems and accounting, among others.
In addition, the FDIC noted, there are "no plans to examine financial institutions for the status of LIBOR planning or criticize loans merely because they use LIBOR as a reference rate."
Commentary / Mark Chorazak
The FDIC has indicated that its examiners will not - for now - be examining banks for LIBOR transition planning. But it seems inevitable that they will begin to do so, perhaps fairly soon.
Even though LIBOR will likely be around for a few more years, the planning work is beginning in earnest at many institutions. The tasks are, in some cases, quite significant: the inventorying of existing LIBOR transactions, the updating of models and systems, and the granular review of litigation and tax implications are all things that will require thorough planning.
Cadwalader has established a LIBOR Preparedness Team to assist institutions on how best to design and manage their LIBOR transition plans. For additional background, please e-mail LIBOR@cwt.com.
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