LIBOR Transition

Dear Boards of Directors and Chief Executive Officers:

On March 5, 2021, the London Inter-bank Offered Rate (LIBOR) administrator announced it will stop publishing the one-week and two-month LIBOR settings immediately following the December 31, 2021, LIBOR publication.¹ The remaining LIBOR settings will cease immediately following the LIBOR publication on June 30, 2023. While the extension of the publication of certain LIBOR settings through June 30, 2023, is not an opportunity to continue using LIBOR, it will allow some legacy LIBOR contracts to mature naturally.

The NCUA encourages all federally insured credit unions to transition away from using the U.S. dollar LIBOR settings as soon as possible, but no later than December 31, 2021. Failure to prepare for LIBOR disruptions could undermine a federally insured credit union’s financial stability, and safety and soundness. As noted in the Federal Financial Institutions Examination Council’s (FFIEC) July 1, 2020, Joint Statement on Managing the LIBOR Transition, the LIBOR transition is a significant event that credit unions should manage carefully. The FFIEC statement recommends that new financial contracts use a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation.

The attached supervisory letter provides the supervision framework examiners will use to evaluate a credit union’s risk management processes and planning regarding the transition from LIBOR. The guidance applies to all federally insured credit unions, and I encourage all credit unions with LIBOR exposure to consult this information.

Please contact your NCUA Regional Office or state supervisory authority if you have questions about this important topic.