Replacement of interest rate benchmarks

This publication is intended to provide general background information about changes to a number of reference rates. Changes to these reference rates can affect customers who use some of our banking products (for example derivatives, loans and securities). Customers should inform themselves about the changes to reference rates. If reference is made in one of your products to an interest rate benchmark(s) which is being reformed or replaced: EURIBOR, LIBOR and/or EONIA), 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 payments in a financial contract and which is outside of the control of the parties to the contract. Interest rate benchmarks are essential for the financial markets and are widely used by banks and other market participants. Various types of transactions use different reference rate benchmarks, but the most common are LIBOR and EURIBOR. Reference rates are used in many different financial contracts and instruments.

What is happening to benchmark rates?

It is important that reference rates are robust and reliable. European legislation, in the form of the Benchmark Regulation, contains rules to ensure this and aims to improve the functioning and integrity of indices used as benchmarks. Once this legislation comes into force, banks, including Rabobank, may only use interest benchmarks if they are included in a public register intended for that purpose. To be included in this register, interest benchmarks must meet certain requirements.

Due to EU Benchmark Regulations as well as international regulatory developments, a number of well-known and widely-used interest rate benchmark indices are expected to be reformed or discontinued. For most benchmarks that are to be discontinued, a replacement alternative risk-free rates has already been developed or is currently being developed.

LIBOR: what is happening?

The Financial Conduct Authority (FCA), the regulator overseeing LIBOR, has publicly stated that it will no longer require banks to participate in the LIBOR panel after 31st December 2021. As a result, LIBOR is expected to become unrepresentative of the underlying market it relates to, or to be discontinued in its entirety. In the meantime, alternative benchmark interest rates are expected to be introduced for the different LIBOR rates which will have to be included in both existing and new agreements.

EONIA: what is happening?

EONIA will become a tracker of the new €STR benchmark upon publication of €STR, as published by the European Central Bank. European Money Markets Institute (EMMI), the administrator of EONIA, has stated that as of 2 October 2019 the change in EONIA’s methodology will take effect. From this date onwards, EONIA will be calculated as the €STR plus a fixed spread of 8.5 basis points. EONIA will no longer be published from 3 January 2022.

EURIBOR: what is happening?

EMMI is also the administrator of EURIBOR. In line with its obligation under EU Benchmark Regulation, EMMI is in the process of strengthening the approach for daily determination of EURIBOR fixings. EMMI has requested and obtained approval for this from the relevant regulator and expects the publication of EURIBOR to continue indefinitely.

Are these changes an initiative of Rabobank?

No, the changes are proposed by industry-wide working groups on the recommendation of supervisors and central banks. More information and background can be found on the website of the Nederlandse Vereniging van Banken.

Are these changes only relevant for Rabobank products?

No. Reference rates are set for all users worldwide. Therefore, the entire industry (both banks and customers), will be subject to these changes.

Which Rabobank customers will have to deal with changes of reference rates?

All customers who have contracts with the following benchmarks:

EONIA
EUR LIBOR
USD LIBOR
GBP LIBOR
JPY LIBOR
CHF LIBOR

What effect does this have on Rabobank customers?

Rabobank adheres to the EU Benchmark regulations. Changes in benchmark rates may have consequences for financial instruments, contracts and agreements in which interest rate benchmarks are referenced. Where an interest rate benchmark is discontinued during the life of the instrument, we will have to use a modified or replacement interest rate benchmark for determining obligations under these instruments, contracts or agreements.

Fallback plan

Pursuant to the Benchmark Regulation referred to above, Rabobank Group has solid plans available in the event that benchmarks cease to exist or change substantially. In this Fallback Plan, Rabobank Group describes its internal procedures to be followed, and actions to be taken, in the event that a benchmark changes substantially or is no longer provided. The Fallback Plan ensures that Rabobank Group investigates possible solutions, follows market practice as much as possible and carries out an impact assessment when designating an alternative benchmark that will replace a benchmark.

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

The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) supervises Rabobank’s implementation of the EU Benchmark Regulation.

Any further questions?

If you have any questions please do not hesitate to contact us, preferably via your Relationship Manager.