Preparing for LIBOR – Strategies to Engage Your Customers Today
Overview Of LIBOR
Financial services firms (primarily regional banks) continue to struggle with preparing for the phase-out of the London Interbank Offered Rate (LIBOR) by the end of 2021. Banks in the United States use LIBOR to set the borrowing rate for lending. LIBOR is the interest rate that one bank charges another for a loan. Eighteen global banks set this interest rate, including Bank of America, Barclays, HSBC, and others. The reach of LIBOR impacts over $370 trillion financial products, including:
- Interbank products – forward rate agreements (FRA), interest rate swaps, interest rate futures and swaptions
- Commercial products such as floating rate certificates of deposits/notes, syndicated loans, and variable mortgages
- Hybrid offerings – collateralized debt obligations (CDO), collateralized mortgages obligations (CMO) and other notes (accruals, callable and perpetual)
- Consumer loan-related offerings like retail mortgages and student loans
Understanding Your Customer
Access to customer information and data remains critical to the success of your organization and transition. Improving the customer experience hinges on knowing your customers – their interactions, transactions, behaviors, and intent. Keeping your employees informed and aware requires alignment across teams and access to relevant customer insights. Some tasks that can help with preparation include:
- Assessing LIBOR impacts for current customers – Data remains king in all situations, and your ability to report out by customer impacts will be critical. Much of this data resides in the core “back-office systems,” which, when aligned with “front office” tools like CRM platforms, can provide much-needed value and visibility to Relationship Managers and field teams. Dashboards that align products and data (e.g., by Obligor, Interest rate, maturity, etc.) allow for assessment across your book of business.
- Optimizing Core Operating Processes – Yes, the transition will require review and updates to your existing processes. Process optimization is the perfect time to enhance processes and control frameworks (including how front and back office teams collaborate). Transition impacts a variety of areas, including banking, capital markets, insurance, and asset management. Multiple subsidiaries and global operations further complicate matters, which could have unforeseen impacts if not aligned. For example, when a Relationship Manager starts to renegotiate a loan and amends provisions beyond just changing the reference rate. This simple activity could be a result of a customer request or new business opportunity, which could result in potential tax issues. Establishing a customer journey flow across acquisition through origination “lead to loan” allows for more visibility across the organization while defining key customer “pain points” and flagging reg/risk/compliance.
- Determine products that could be affected by LIBOR – Given the complexity across client relationships (e.g., loans, deposits, derivatives, securities), a single coordinated approach to contacting each client is optimal. Having a Banker Desktop, which helps to identify and alert users based on product types, can help both executive management and field teams track specific banking activity. For some products, a change to the terms may only require notification to the client, in contrast to contracts that mature beyond 2021. Also, the type of product will impact the approach. For derivatives, a market protocol will make contract amendments easier, so having the ability to track and countersign will help.
Here are a few areas of focus to help as you prepare for the transition.
- What are the customer impacts? Assess your LIBOR exposure across the enterprise.
- Align customer profiles with product pricing (i.e., Treasury – define and clarity on rates and adjustments).
- Documentation management to identify and review all materials for loans maturing after December 31, 2021.
- Operational readiness – streamline both front and back-office teams, processes, and systems for customer dashboard/reporting metrics.
About the Author
Scott Hamerink, VP of Financial Services
Scott brings more than 18 years of experience leading enterprise customer engagement and digital initiatives, primarily within Financial Services. His executive experience and insights provides in-depth perspectives for industry-relevant solutions across banking, insurance & healthcare.
- The Value of Marketing Cloud Realized for Financial Services - August 14, 2020
- Are Credit Unions Transforming Member Experience? - August 10, 2020
- One Preference Center to Rule Them All: Xelerating SFMC - June 12, 2020