NEW YORK - Bank of America Corp (NYSE:BAC). has announced a significant financial impact in its fourth-quarter earnings due to the discontinuation of the LIBOR benchmark interest rate and the BSBY index. The bank disclosed a $1.6 billion pretax non-cash charge, which is expected to be recouped as interest income over the next two years, by 2026.
The cessation of LIBOR and the BSBY index has had a marked effect on the bank's operations, particularly in its market making activities and interest-rate swaps. This transition necessitated a reclassification that has altered projected cash flows and affected cash flow hedges. As a result, the bank noted several key financial metrics being impacted:
- A decrease in accumulated other comprehensive income
- A reduction in shareholders' equity
- An eight basis point drop in the common equity tier 1 ratio
These adjustments reflect the ongoing challenges financial institutions face as they navigate away from LIBOR, a foundational element of global finance for decades, towards alternative reference rates. The transition is part of a broader regulatory push to adopt more reliable and transparent benchmarks for lending and financial contracts.
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