All 11 Federal Home Loan Banks have adhered to the ISDA IBOR Supplement and Fallbacks Protocol.  This protocol was launched October 23, 2020 and will become effective January 25, 2021.  For those in the midst of LIBOR transition, this is a very important document for both you and your counterparties. 

How do the Protocol and Supplement affect derivative transactions? 

The IBOR protocol will amend your existing ISDA Master Agreements to include IBOR fallback and trigger event language and trigger events.  This will allow your legacy derivative portfolios to be amended to include robust fallback and trigger event language.  The supplement will update the definitions utilized in new derivative transactions entered into after January 25, 2021 to include fallback and trigger event language. By adhering to this protocol and supplement, both your legacy and new transactions will include robust fallback and trigger language.

How do you adhere to the Supplement and Protocol?  

The ISDA supplement and protocol are available for adherence on the ISDA website,  The website will walk the user through the process to complete and submit an adherence letter.  Both you and your counterparty need to adhere to the protocol for it to be effective.  The user can view the list of adhering parties on the ISDA website.  If your counterparty has not adhered, you may want to contact them as to their intention to adhere or not.  ISDA published several templates to be used if there are parts of the protocol that the parties wish to negotiate before or after adherence.  If your ISDA Master Agreements include a guarantor (either the counterparty has provided a guarantor or an affiliated Member entity is providing a guarantee), the parties may want to assure the guarantor has adhered or consult legal guidance as to the next steps.

Does this amend LIBOR based assets or liabilities? 

No.  The ISDA Protocol only affects derivative contracts.  Members are advised that they should review their asset and liability portfolios to 1) ascertain if the contracts have existing fallback and trigger event language and how they contractually function 2) if contracts do not have fallback language the Member may want to contact the other party to the transaction to discuss amending the contract language.  The FHLB has reviewed its Agency MBS positions to understand the rights and obligations that the parties have to each other, as these LIBOR based assets move to an alternative index and included this analysis in the FHLB’s LIBOR Transition plan.  Members may want to review the changes to the ISDA definitions included in this protocol to assure that any new loans are structured to mirror the conventions introduced by ISDA and avoid unwanted basis risk.

What is next on ISDA’s calendar? 

The ISDA Working Group on Definitions continues to meet and has published a tentative timeline to launch new 2021 Definitions for use in derivative transactions in by mid-year 2021.  

ISDA has a short YouTube video that describes the protocol.