An Update on LIBOR-linked Collateral
April 22, 2021
As the industry continues to prepare for the cessation of the publication of London Interbank Offered Rate (LIBOR), we want to keep our members informed on potential impacts and updates to LIBOR-linked collateral.
We anticipate cessation of the publication of LIBOR will gain momentum this year as financial market participants continue to evaluate their exposure and begin to transition to alternate reference rates. On March 5, 2021, the ICE Benchmark Administration (IBA), which publishes LIBOR for various currencies and tenors, confirmed its intention to extend publication of the most commonly used U.S. dollar LIBOR tenors until June 30, 2023. While this is a significant industry development, U.S. financial regulators encourage financial institutions to continue to reduce LIBOR exposures and transition to a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s publication cessation.
As you are aware, FHLBank Topeka began collecting information regarding LIBOR-linked loan collateral pledged to FHLBank that matures after 2021 from blanket-pledge members through the enhanced Qualifying Collateral Determination (QCD) Form during the September 30, 2020, reporting period. We will follow up with those members that pledge significant LIBOR-linked loan collateral to FHLBank or that might be reliant on LIBOR-linked loan collateral to support outstanding credit obligations in 2Q 2021 to better assess their transition progress to an alternate reference rate.
At this time, FHLBank is not making any changes to its underwriting requirements, lending values or reporting requirements for LIBOR-linked collateral pledged to FHLBank that matures after 2021. However, this is an evolving issue, which may require us to adjust lending values and the processes we use to establish market values for post 2021 LIBOR-linked collateral. Potential changes could occur frequently as market conditions warrant. In addition, further enhancements to the QCD Form may be needed to facilitate some changes to LIBOR-linked loan collateral reporting later in 2021.
We understand that our request for ongoing information regarding LIBOR-linked loan collateral pledged to FHLBank is not without its challenges. We remain committed to assisting you with any challenges that arise related to this matter.
We value your membership and look forward to continuing to provide you access to an array of flexible funding options for mortgage lending, liquidity, asset/liability management and community investment needs.
If you have any questions about LIBOR-linked collateral, please contact Tom Bliss, Vice President and Director of Credit Administration, Kylie Mergen, Vice President and Director of Financial Services, or Elaine Shumaker, Assistant Vice President and Manager of Financial Services, at 877.933.7803.