October 17, 2018 - On Tuesday, October 16^th, the Financial Stability Oversight Council (FSOC) publicly discussed a number of market and regulatory issues. Top of the agenda (literally) was LIBOR. Federal Reserve Vice Chairman Randal Quarles provided an update on LIBOR (it’s shrinking), SOFR (it’s growing; note the latest JPM billion SOFR FRN) and fallback language (it should be adopted). What is new is that the banking supervisors are beginning to ask banks what, exactly, they are doing to prepare for LIBOR transition. In September, the Bank of England and the FCA sent a stern letter to UK bank CEOs demanding to know their assessment of risks related to LIBOR discontinuation, action plans to mitigate those risks and the identity of senior managers who are overseeing the transition plans. (Responses are due December 14^th. They’re not kidding.) Back at FSOC, Vice Chairman Quarles said that the U.S. regulators are not going that far. However, as one can hear in minutes 8-10 of the FSOC Open Meeting, federal and state regulators are working through the federal financial institutions exam committee to coordinate education of banks and examiners on what is happening to LIBOR and its effect on the financial system. Bank supervisory teams for large firms already are including LIBOR in routine monitoring meetings; supervisory teams for regional and community banks are engaging on LIBOR to ensure that smaller banks are aware of the transition. Moreover, as LIBOR transition approaches, the Fed would expect to see an appropriate level of preparedness from the banks it supervises, and will ask further questions on readiness for new reference rates. So, LIBOR is transitioning and SOFR (presumably) is coming. If you don’t believe us, believe Vice Chairman Quarles.