City National Bank is actively making preparations to transition away from the London Interbank Offered Rate (LIBOR). Although LIBOR is one of the most widely used interest rate indexes in the U.S. and global financial industry for loans and other products, the U.K.’s Financial Conduct Authority (FCA), the regulator of LIBOR, has called for a worldwide transition away from LIBOR by the end of 2021. The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have emphasized that U.S. banks should not enter into new loan contracts using USD LIBOR after Dec. 31, 2021. However, many banks are targeting a date in advance of that to cease issuing or renewing LIBOR-based loans. Regulators are encouraging firms and investors to transition away from the use of LIBOR to new rates as soon as they are able. While the FCA announcement pertained to LIBOR specifically, an industry-wide response triggered an examination more broadly of other Interbank Offered Rates (IBORs).
As of March 2021, the FCA confirmed that the publication of LIBOR on a representative basis will cease for one-week and two-month USD LIBOR after Dec. 31, 2021, and the remaining USD LIBOR settings after June 30, 2023. City National Bank is planning to cease offering LIBOR loans and other products and begin originating loans and other products using alternative reference rates at some point in 2022. City National Bank plans to offer its clients the option of referencing either the Secured Overnight Financing Rate (SOFR) or the American Interbank Offered Rate (AMERIBOR) prior to the date that LIBOR’s publication ceases.
Important Note to Clients
Given the pending cessation of LIBOR, there is no guarantee that LIBOR will continue to be published for the entire term of any financial instrument that references this rate, including any loan or interest rate hedging product you may have with City National Bank.
A change to the methodology used to calculate LIBOR or the permanent discontinuation of LIBOR could have an economic impact on any financial products referencing that rate. The terms of a financial instrument may provide a process for establishing a fallback rate, but for certain types of financial instruments it is currently uncertain what that fallback rate would be or how it would be established. The discontinuation of LIBOR could also result in a mismatch between the fallback rate established in the relevant financial instrument and your other financial instruments, including transactions used to hedge the impacted transaction.
As the migration away from LIBOR presents risks to both creditors and borrowers, City National Bank will continue to monitor the situation. We recommend that you do the same. You should consider (with your professional advisors) how you may be impacted by these developments, including whether there are other available benchmark interest rates offered that you may wish to select and whether it is necessary to amend any of your existing documentation referencing LIBOR.