The answer depends on your bank’s usage of the LIBOR. If your bank uses the LIBOR as a benchmark rate in any of its loan notes or agreements, or in other ways listed in the letter, you will have to pay a licensing fee. But if your bank has eliminated any use of the LIBOR (meaning there are no existing loans, etc. on your books that use it), you should sign the non-usage declaration.

When the ICE introduced LIBOR licensing in 2014, it began sending these demand letters to various financial institutions across the country, and it continues to send these letters in waves. Apparently it targets institutions based on their subscriptions or vendor usage. For example, if a bank has a subscription to a service (such as Bloomberg) that provides access to LIBOR data, the ICE targets that bank as a potential LIBOR user and then sends this letter. 

However, we do not believe that the ICE can determine whether a bank actually uses the LIBOR in a way that would require licensing based on publicly available information. Your bank will need to make its own determination as to whether it is using the LIBOR in any fashion. As explained in a recent FDIC article (linked below), there are many ways that your bank may be using LIBOR as a reference rate, from consumer and commercial loans and deposit rates to bonds, syndicated loans, and hedging. Any of these uses will trigger the ICE licensing fee.

Many banks have stopped using the LIBOR as a reference rate after a price-fixing scheme to fix the rate was uncovered in 2012, causing it to be discredited. But it is possible that your bank’s existing notes or other agreements continue to use the LIBOR as a reference rate, and it may need to undertake a review to determine whether this is the case. If you determine that there is some LIBOR usage at your bank, your annual licensing fee should be $2,000 annually, based on your institution’s size. When these notes and agreements run their course, you may wish to replace the LIBOR benchmark with a different reference rate, such as Ameribor or the Federal Reserve’s Secured Overnight Financing Rate (SOFR). Once your bank has eliminated all legacy references to the LIBOR, your bank should make a non-usage declaration to the ICE and cease paying the annual licensing fee. This can be done on the ICE website, which is described in the letter you received.

For resources related to our guidance, please see:

• FDIC, Supervisory Insights, Transitions in Financial Instrument Reference Rates (Winter 2018) (“For decades, the London Interbank Offered Rate (LIBOR) has been one of the most frequently used interest rate benchmarks, or reference rates, used in pricing assets and liabilities as well as off-balance sheet derivative contracts. . . . In 2012, UK financial regulators (currently, the Financial Conduct Authority (FCA)) began overseeing LIBOR. (Footnote 2: In 2014, a different company (International Exchange (ICE)) began to calculate and administer the rate, now called ICE Libor, subject to FCA regulation.)”)

• FDIC, Supervisory Insights, Transitions in Financial Instrument Reference Rates (Winter 2018) (“[M]any bonds and loans, such as syndicated loans, are LIBOR-based. As such, institutions that buy participations in syndicated loans likely have LIBOR exposure. Financial institutions also use LIBOR as a reference rate for variable rate commercial and consumer loans. The most common consumer loans based on LIBOR include home mortgages, student loans, credit card, and auto loans, with approximately $1.3 trillion outstanding. Moreover, LIBOR use is not limited to the asset side of the balance sheet. Financial institutions also may set deposit rates based on a spread from LIBOR; others have hedging structures based on LIBOR.”)

• FDIC, Supervisory Insights, Transitions in Financial Instrument Reference Rates (Winter 2018) (“In 2017, the ARRC developed the Secured Overnight Financing Rate (SOFR) primarily for dollar-denominated derivative products. . . . Another US-based alternative reference rate is Ameribor, which was created by the American Financial Exchange (AFX), and reflects the borrowing costs of more than 100 US small- and mid-sized banks using a 30-day rolling average of the weighted average daily volume in the AFX overnight unsecured market. Other reference rates also may be created for application to particular products.”)

• Alternative Reference Rates Committee, ARRC Recommendations Regarding More Robust Fallback Language for New Issuances of Libor Floating Rate Notes (April 25, 2019) (“U.S. dollar LIBOR (‘LIBOR’) is widely used in the global financial system in a large volume and broad range of financial products and contracts. In 2014 as a response to concerns about the reliability and robustness of LIBOR and other term wholesale unsecured bank borrowing rates, the Financial Stability Oversight Council and Financial Stability Board (‘FSB’) called for the development of alternative interest rate benchmarks. . . . The smoothest transition away from LIBOR will be one in which new contracts are written and existing contracts are amended to reference rates other than LIBOR. However, LIBOR-based products continue to be issued . . . .”)
   
• ICE Benchmark Administration, Licensing and Data Fee Schedule (Version 2.3, January 2019) (“Appendix: Fees for Smaller Regional Depository Institutions:

ICE Benchmark Administration offers alternative licence fees for smaller regional banks and other depository institutions. For depository institutions using a single LIBOR currency, the Usage Licence fee will be modified as follows*:

	Asset size *	Licence Fee
	Greater than $10bn	Full licence fee
	Between $1.5bn and $10bn	$2,000 per annum
	Less than $1.5bn	Fee waived

                                  

 

                    

​* Dependent upon the institution’s total asset size on 1st July 2014; US$ amount as stated above or local currency equivalent.”)

• Federal Reserve Bank of New York, Alternative Reference Rates Committee website
   
• Alternative Reference Rates Committee, A User’s Guide to SOFR (April 2019)