Bank of America Corp. has announced that it will take a noncash pretax charge of approximately $1.6 billion in its fourth-quarter report. This charge is related to the global transition away from an index that has been used to replace the London interbank offered rate, also known as Libor. The $1.6 billion net impact will be added back into Bank of America’s interest income over the next few years, primarily through 2026.

The accounting adjustment is a result of the discontinuation of the Bloomberg Short-Term Bank Yield Index (BSBY), which Bank of America has been using to calculate rates on some of its commercial loans. While BSBY was used as a replacement for Libor, it was not as popular among banks as the secured overnight financing rate (SOFR), which reflects the cost of overnight borrowing.

Bloomberg Index Services Limited announced in November that the BSBY would officially cease to exist on November 15, 2024. As part of the transition, Bank of America had to “de-designate” certain interest-rate swaps used in cash-flow hedges of BSBY-indexed loans. The bank is reclassifying into earnings any amounts recognized in the accumulated other comprehensive income category of shareholders’ equity that relate to forecast cash flows that are no longer expected to occur. The reclassification amount totals $1.6 billion.

The accounting adjustment comes after the U.S. Federal Reserve and other banking regulators decided to end the use of the Libor interbank interest-rate benchmark by mid-2023. In 2021, Bank of America began using both SOFR and BSBY rates in various lending agreements, including commercial loans.

On Monday, Bank of America’s stock declined by 1.9%. The bank is set to report its fourth-quarter earnings on Friday.

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