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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. SIBOR, CDOR, WIBOR 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 is 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 (e.g. LIBOR, EONIA) 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. The advice however is to have adequate fallback language incorporated in EURIBOR contracts to deal with situations where EURIBOR is no longer representative or published. EONIA has been discontinued on 3 January 2022. Publication of all LIBOR benchmarks has ended with the last USD LIBOR terms being published per the end of June 2023.
For USD LIBOR 3 (1,3 and 6 month) terms are published on a synthetic basis until September 2024. These synthetic rates will not be available for use in any new contracts. 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 representativeness.
Which Rabobank clients will be affected by the replacement of benchmarks?
All clients who have contracts with amongst others the following reference rates:
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 at Notice regarding the reform and/or discontinuation of interest rate benchmarks.
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 on the European Union Benchmarks Regulation page.
Frequently Asked Questions on the IBOR transition can be found below. Also, more information on the upcoming changes:
FAQ's benchmark reform & reference rates
Frequently Asked Questions with background information on benchmark reform and related changes to a number of interest rate benchmarks, also known as reference rates. Changes to reference rates can affect clients who use our banking products, such as derivatives, loans and securities.