LIBOR-Indexed Collateral is Ineligible Beginning July 1, 2023

last updated on Monday, May 1, 2023 in Business News

As we approach the June 30, 2023 cessation date for LIBOR, FHLB Des Moines is approaching the final phases of our transition plan.

Beginning July 1, 2023, LIBOR-indexed loans and securities are no longer eligible collateral

• Loan Listing
  Members will not receive advance capacity for any LIBOR-indexed loans pledged in their loan listing file.
• Borrowing Base Certificate (BBC)
  Members will not receive advance capacity for the percentage of LIBOR-indexed loans pledged on their BBC.

Transitioning LIBOR-Indexed Loans to Maintain Collateral Eligibility

All pledged collateral must include the loan’s current interest rate and contractual index and margin for the as-of date the loan is reported as eligible collateral.

Members may pledge/report loans previously indexed to LIBOR if:

• The loan has contractually transitioned away from a LIBOR index, regardless of whether a rate reset to the new index and margin has occurred
• For members pledging via listing files, member can report the new non-LIBOR index and margin to be used at the next rate reset

Modifications 

• Loans indexed to regulatory-allowed fallback indices are not deemed to be modifications
• Members reporting loan detail on commercial or residential Expanded File Formats must report the loan as modified only if a written modification of the loan has been executed with the borrower*. 
• Any written modification agreement executed with the borrower to add or affect an index, margin or index fallback language must be delivered to the Bank’s custodian where collateral delivery is required

Current Interest Rate

• Report the current interest rate charged to the borrower as-of the reporting date regardless if the rate is determined on a pre-July 1, 2023 LIBOR-indexed basis

Collateral Verification

Member Collateral Verification (MCV) staff will review documentation evidencing index transition from LIBOR indexed loans. For MCVs after June 30, 2023, loan accounting system (LAS) documentation reflecting the loan’s new index, aligned with applicable fallback language, modifications (if any) and borrower notifications will be reviewed. Lack of LAS index transition and/or miscalculation in rate adjustments will result in the loan’s ineligibility.

*Where collateral delivery is required, any written modification agreement executed with the borrower must be delivered to the Bank's custodian.

1. Collateral
2. Credit and Collateral
3. LIBOR