Q: What is the “LIBOR transition?”
A: The “LIBOR transition” references both the anticipated discontinuation of LIBOR (and LIBOR-based indices), as well as the preparations financial institutions, government agencies, and other entities are making to transition businesses from LIBOR-based indices.
On June 30, 2023, the last tenors of USD LIBOR (LIBOR) are expected to end. This change will affect some adjustable (or variable) rate loans and lines of credit, such as adjustable-rate mortgages (ARMs), reverse mortgages, home equity lines of credit (HELOCs), credit cards, student loans, and any other consumer loans that use LIBOR as the index. For consumer financial products and services, financial entities are developing their approach to the LIBOR transition, including how to transition existing accounts from LIBOR to another index and selecting new indices for new originations going forward.
In the U.S., the Federal Reserve has convened a group called the Alternative Reference Rates Committee (ARRC) to help facilitate the likely transition away from the use of LIBOR as an index. The ARRC is comprised of a diverse set of private-sector entities in markets affected by LIBOR, and a wide array of official-sector entities, including banking and financial sector regulators (such as the Bureau) as non-voting, ex-officio members. The ARRC has identified the steps industries need to complete for the transition, such as making contract revision and replacement index selection recommendations. More information about the LIBOR transition and ARRC recommendations on preparing for the transition can be found on the ARRC’s website.
The Bureau provided the FAQs below to address regulatory provisions affected by the LIBOR transition and published a final rule to address regulatory changes needed for the transition (LIBOR Transition Rule).