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Arkansas State Bank Department

The mission of ASBD is to maintain a legal and regulatory structure for Arkansas's financial industry. This structure provides the public with convenient, safe and competitive banking, which fosters economic development within this State. Our mission is accomplished through efficient allocation of available human and other resources existing in our Examination, Information Technology and Administrative Services Divisions.

London Interbank Offered Rate (LIBOR)

Mar 20th, 2019

DATE:       March 20, 2019

TO:            Chief Executive Officer of the Institution Addressed

FROM:       Candace Franks, Bank Commissioner

SUBJECT: London Interbank Offered Rate (LIBOR)

 

As you may recall, in my comments provided at the 2018 Day With the Bank Commissioner, I referenced the recent industry discussions around the London Interbank Offered Rate (LIBOR) and I would like to provide you with additional information related to this topic.

 

The widely used reference rate known as the London Interbank Offered Rate (LIBOR) is scheduled to go out of existence. The banks that serve on the panel providing the inputs to LIBOR have agreed to support the reference rate only until the end of 2021. Financial institutions should be preparing for this event well in advance of that date.

 

The Alternative Reference Rates Committee (ARRC) has been meeting since November 2014 to identify a set of alternative US dollar reference rates that are based on transactions from a more robust underlying market than LIBOR. In June 2017, the ARRC identified the Secured Overnight Financing Rate (SOFR), which the Federal Reserve Bank of New York publishes in cooperation with the U.S. Office of Financial Research, as the reference rate that represents best practice for use in certain new US dollar derivatives and other financial contracts. Financial institutions may select any reference rate for use, regulators are not mandating the use of SOFR or any other rate.

 

Participants in many cash markets using LIBOR as a reference rate are now actively seeking to mitigate their risks both by seeking more robust contract language and considering transitioning away from LIBOR to a new reference rate.

 

Financial institutions are encouraged to begin taking risk management actions now to manage the transition from LIBOR:

 

1.       Identify all on-balance sheet and off-balance sheet references to LIBOR.

2.       Determine which items will continue to exist beyond 2021 and ensure that their documentation includes appropriate fallback language for when LIBOR no longer exists.

3.       Work with counterparties to amend the necessary documentation.

4.       Develop disclosures for affected customers

 

Please contact this office if you have any questions about managing the transition. To date, the federal regulatory agencies have not issued supervisory guidance on this topic. The web site of the ARRC (www.newyorkfed.org/arrc) is an excellent source of the latest information on developments. The FFIEC hosted an industry webinar in December that provides background information. The archived presentation can be viewed by registering at https://www.webcaster4.com/Webcast/Page/583/28297

 

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The Great Seal of Arkansas

The State Bank Department was created by Act 113 of 1913. The Department is charged with regulating commercial banks with main offices in Arkansas. These 79 banks hold assets of over $101.5 billion as of March 31, 2019. The Department also is charged with supervising the bank holding companies of Arkansas state-chartered banks; state-chartered trust companies; regional and county industrial development corporations; industrial loan institutions; and capital development companies. The Department operates to ensure the safety and soundness of, and public confidence in, these institutions and organizations.


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