"Death is not a foe, but an inevitable adventure." - Oliver Lodge
A great adventure is what we face today with LIBOR transition. The Financial Conduct Authority (FCA) announced this morning that the most commonly used tenors of US Dollar LIBOR would cease after June 30, 2023 with 1-week and 2-month tenors ceasing at December 31, 2021. Please see the announcement here.
In addition to this announcement, the International Swaps and Derivatives Association (ISDA) published a press release clarifying that a cessation event under the terms of the IBOR Fallback Supplement and Protocol had occurred and that the adjustment from LIBOR to SOFR had been set as published on Bloomberg. Please see this press release here.
The ICE Benchmark Administrator published the feedback from its most recent consultation. ICE is the administrator appointed by the FCA to administer and publish the IBOR rates. Please see the statement here.
While the date is now a known as to the projected demise of LIBOR, regulators continue to push for financial market participants to cease their usage of LIBOR in financial transactions and manage down their balance sheet exposure. The FHLB is in the midst of this effort, as well. The following list summarizes some of our most important efforts.
- Limiting new LIBOR Advance products and added language to existing LIBOR Advances as to fallback language. Looking at new products that may act as a substitute for LIBOR Advances by the Membership. If a Member has an idea for a new Advance type that they would like to see the FHLB offer, please contact your relationship manager with your ideas. We would love to hear from you as to how we can assist you in your success.
- Reviewed the entire Mortgage Backed Securities portfolio as to the fall back language and triggers, if any. Monitoring the playbooks of Fannie Mae and Freddie Mac to understand their timing and methodology for moving agency Mortgage Backed Securities to SOFR.
- Analyzing the derivatives portfolio for voluntary movement of the portfolio to an alternative index prior to the cessation date.
- Funding the FHLB utilizing floating rate debt that is tied to SOFR. The FHLB has no LIBOR based debt remaining on the Balance Sheet.
- Adopted the ISDA IBOR Fallback Supplement and Protocol. All derivatives now include robust fallback and trigger language.
- Created an inventory of IT systems that are impacted by the LIBOR Transition. Completing changes to systems through internal work and soliciting input from vendors to conform to replacement index specifications.
- Monitoring market liquidity and development of new financial instruments based on alternative indices and various iterations of those indices.
We hope that this short listing of FHLB initiatives gives you comfort that the FHLB is moving forward in LIBOR transition efforts and provides some ideas for your own LIBOR transition planning. Again, your FHLB team is always here to assist you in this effort and offer our expertise to you as all of us go through this great adventure together.