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DFS takes steps to ensure institutions set for SOFR

Financial Services Superintendent Linda A. Lacewell announced that the New York State Department of Financial Services (DFS) is directing New York-regulated depository and non-depository institutions, insurers and pension funds to submit their plans for managing the risks relating to the likely discontinuation of the London Interbank Offered Rate (LIBOR) at the end of 2021.

LIBOR is widely used to price a vast number of loans, derivatives and securities transactions.

LINDA LACEWELL

According to estimates, the value of all financial products linked to U.S. dollar LIBOR is approximately $200 trillion, including $3.4 trillion of business loans, $1.3 trillion of consumer loans (held by about four million retail consumers) and $1.2 trillion of residential mortgage loans. The remaining 95 percent of exposures are in derivative contracts, notably interest rate swaps.

“Our financial institutions with LIBOR exposure need to prepare to manage the significant risks associated with its likely cessation, and be ready to transition to alternative reference rates,” superintendent Lacewell said.

With this letter, the Department is taking action to ensure that regulated institutions’ boards of directors, or the equivalent governing authorities, and senior management fully understand and have assessed the risks associated with the potential cessation of LIBOR, have developed an appropriate plan to manage them, and have initiated actions to facilitate transition to alternative reference rates.

DFS is requiring its regulated depository and non-depository institutions, insurers, and pension funds to submit to the Department their plans to address their LIBOR transition risk management plan by March 23, 2020.

A full copy of the letter can be found on the DFS website.

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