It’s time to transition away from LIBOR, NCUA says

The NCUA on Monday encouraged 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.

A letter to credit unions from Todd Harper, NCUA chairman, stated that failure to prepare for LIBOR disruptions could undermine a federally insured credit union’s financial stability, and safety and soundness.

On March 5, 2021, the LIBOR administrator announced it will stop publishing the one-week and two-month LIBOR settings immediately following the December 31, 2021, LIBOR publication, according to the NCUA. The remaining LIBOR settings will cease immediately following the LIBOR publication on June 30, 2023, and 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.

As noted in a Federal Financial Institutions Examination Council’s July 1, 2020 joint statement, the LIBOR transition is a significant event that credit unions should manage carefully, Harper stated. “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,” he said.

A 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, of which Harper encouraged all credit unions with LIBOR exposure to consult.

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