Replacement of interest rate benchmarks

This publication is intended to provide general background information on changes to a number of interest rate benchmarks, also known as reference rates. Changes to these reference rates can affect clients who use some of our banking products (for example derivatives, loans and securities). If reference is made in one of your products to a reference rate which is being or has been reformed or replaced, e.g. LIBOR, EONIA, SIBOR, SOR and/or HIBOR, then this is relevant to you.

What are reference rates?

A reference rate is an interest rate benchmark used to set other interest rates or to determine pay-offs in a financial contract and which is outside the control of the parties to the contract. Reference rates are essential for the smooth functioning of financial markets and are widely used by banks and other market participants. Various types of transactions use different reference rates, but the most common are LIBOR, EONIA and EURIBOR. Reference rates are used in many different contracts like floating rate notes, loans, swaps, short-term interest rate futures contracts and debt capital markets instruments, as well as homeowner mortgages.

What is happening to reference rates?

Due to international agreements and the EU Benchmark Regulation (BMR) a number of well-known and widely used reference rates have been or will be reformed and/or discontinued and are or will be replaced with alternative risk-free rates.

EURIBOR has been subject to a reform and is currently not intended to be replaced with an alternative rate. This reform has made EURIBOR compliant with BMR and the rate can therefore continue to be used for existing and new contracts and instruments. EONIA has been discontinued on 3 January 2022. Publication of 24 LIBOR benchmarks has ended as of end-2021:

  • all EUR LIBOR and CHF LIBOR benchmarks
  • the overnight / spot next, 1-week, 2-month and 12-month GBP and JPY LIBOR benchmarks
  • the 1-week and 2-month USD LIBOR benchmarks.

The UK regulator has allowed the temporary use of ‘synthetic’ 1, 3 and 6 month GBP LIBOR and 1, 3 and 6 month JPY LIBOR in all legacy contracts, other than cleared derivatives, that were not changed at or ahead of 31 December 2021. These synthetic rates will not be available for use in any new contracts1. The rates are called synthetic, because they are based on a different methodology. This methodology does not involve panel bank contributions. Please note that synthetic LIBOR benchmarks will not be “representative” and so will not be available for use in contracts where fallback language includes a trigger event for LIBOR’s loss of representativeness2. Synthetic JPY LIBOR will cease at the end of 2022. Availability of synthetic GBP LIBOR is not guaranteed beyond end-2022.

The remaining five USD LIBOR benchmarks will continue to be based on panel bank submissions and published until 30 June 2023. However, Regulatory authorities have restricted new use of USD LIBOR from 1 January 2022, with limited exceptions.

Please find below a non-exhaustive overview of the recommended alternative rates per frequently used reference rate.

ibor-oversight-table-2020-2022

Which Rabobank clients will be affected by the replacement of benchmarks?

All clients who have contracts with amongst others the following reference rates:

  • EONIA
  • EUR LIBOR
  • USD LIBOR
  • GBP LIBOR
  • JPY LIBOR
  • CHF LIBOR
  • SIBOR
  • SOR
  • HIBOR

What effect does this have on Rabobank clients?

Changes in reference rates may have consequences for financial instruments and contracts in which these rates are referenced. Where a reference rate is discontinued during the life of the instrument, we will have to use a modified or alternative reference rate for determining obligations under these instruments, contracts or agreements. The reform and/or discontinuation of reference rates presents various risks which may have a material financial, economic or other impact on your financial products referencing these impacted rates. Further information on certain potential risks related to the material change or discontinuation of reference rates used in financial products can be found here.

Rabobank is working with regulators, industry bodies and trade associations towards a smooth transition. We will continue to update our clients as reference rate reforms and transitions develop. We will work with our clients to agree on any required changes to legal documentation to facilitate this transition. Such changes could include the addition of fallback provisions in financial contracts to set out the alternative rate that would be applied should a reference rate cease to be available.

Fallback plan

Pursuant to the BMR, Rabobank has robust plans available in the event that reference rates cease to exist or change substantially. In this fallback plan (Robust Written Plan), Rabobank describes its internal procedures to be followed, and actions to be taken, in the event that a reference rate changes substantially or is no longer provided. The fallback plan ensures that Rabobank investigates possible solutions, follows market practice as much as possible and carries out an impact assessment when designating an alternative reference rate that will replace a current reference rate.

The fallback plan is periodically updated as more information becomes available. A high level version of the plan can be found here.

Frequently Asked Questions on the IBOR transition can be found here. Also, more information on the upcoming changes: