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 reformed or replaced, i.e. EURIBOR, 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 are reformed or expected to be discontinued by the end of 2021 and replaced with alternative risk-free rates.

There is no hard regulatory deadline attached to the LIBOR transition. Regulators though are applying pressure for LIBOR to be replaced by alternative rates before the end of 2021. Since 1 October 2019, EONIA is calculated with a reformed methodology tracking €STR. EONIA will no longer be published after 3 January 2022 and solely €STR will be published as of that moment. EURIBOR has been subject to a reform and is currently not intended to be replaced with an alternative rate. Reforms have made EURIBOR compliant with BMR and the rate can therefore continue to be used for existing and new contracts and instruments.

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 in order to facilitate 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.

More information on the upcoming changes:

Dutch Banking Association (Nederlandse Vereniging van Banken)
• European Money Markets Institute
• Alternative Reference Rate Committee
• Working Group on Euro Risk-Free Rates
• Working Group on Sterling Risk-Free Rates
• International Swaps and Derivatives Association