FHLB Cincinnati LIBOR transition update

February 08, 2019

FHLB Cincinnati has begun to transition away from products linked to the London Interbank Offered Rate, or LIBOR. Regulators and others in the industry were concerned about the manipulation of LIBOR by market actors during the financial crisis, and have sought a more robust and liquid benchmark. In 2017, the Federal Reserve Board endorsed a rate called the Secured Overnight Financing Rate (SOFR), and the FHLBanks have begun adopting it as a replacement for LIBOR. The FHLB is currently working to implement the transition away from LIBOR to the new reference rate.

Many market participants have begun issuing debt using SOFR as the reference rate including: Fannie Mae, Credit Suisse, MetLife, The World Bank, JP Morgan Chase, Wells Fargo, and the FHLBanks. Currently, the FHLBanks are the world's largest issuer of SOFR-indexed debt and intend to be a leader in the development of a well-functioning SOFR market. FHLB Cincinnati also offers a SOFR-indexed Advance. The SOFR Advance is currently offered alongside our LIBOR-based Advance. At this time, the SOFR Advance is available upon request or special offering and, as such, a rate is not posted to Members Only.

As the markets progress towards LIBOR's cessation, the FHLB is monitoring several key items including:

  • Financial market liquidity for LIBOR and SOFR indices.
  • Evolution of financial contract (fallback and trigger) language. This includes Advance application language and derivative contract language.
  • Market consensus on treatment of legacy financial instruments linked to LIBOR.

FHLB Cincinnati encourages its members to understand their potential exposure to LIBOR, and how a transition to a new reference rate, such as SOFR, could affect their business operations, including any LIBOR indexed collateral pledged to the FHLB. The FHLB is currently determining the extent of its exposure to LIBOR indexed variable rate collateral. Surveys will be conducted during our normal loan review activities to assist in this effort.

The FHLB Cincinnati will continue to keep members updated on developments regarding LIBOR transition and replacement, and looks forward to being a trusted source of information on this topic. To learn more about how SOFR is calculated, visit the website of the Federal Reserve Bank of New York. Additional information regarding LIBOR transition is available to members by clicking here. Fallback and trigger language for derivatives can be reviewed at isda.org.

Additional questions should be directed to the Credit Department at 800-828-4191 or your Relationship Manager.

Andrew S. Howell
President and Chief Executive Officer

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