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€STR-based fallbacks for EURIBOR

The working group on euro risk-free rates is looking at identifying fallbacks for EURIBOR based on the €STR, to prepare for a scenario in which EURIBOR may permanently cease to exist.

The working group has already provided some guidance on how to introduce the €STR-based fallbacks to EURIBOR in contracts and has analysed the risk management and financial accounting implications of their introduction. The outcome of this analysis is reflected in several documents which include recommendations to market participants (see below), although market participants should individually decide on the most appropriate approach given their particular circumstances.

The recommendations provided thus far will be complemented by additional ones planned for early 2021.

Ongoing public consultations

On 23 November, the working group on euro risk free rates published two consultations:

These consultations are designed to gather views on the events that would trigger a EURIBOR fallback and which €STR-based rates would be most appropriate in the event of a fallback scenario.

Feedback on these consultations will support the final recommendations on both topics, to be published by the euro risk-free rate working group by the end of Q1 2021.

Responses to both consultations should be sent to eurorfr@ecb.europa.eu by 15 January 2021 17:00 CET using the following response forms:

The ECB will evaluate all responses and prepare anonymised summaries of the feedback in cooperation with:

  • The European Securities and Markets Authority (ESMA) for the consultation on EURIBOR fallback trigger events
  • The European Commission for the consultation on €STR-based EURIBOR fallback rates

These summaries will be published on the ECB’s website and considered by the working group at its meeting on 18 February 2021.

Backward-looking methodologies

As part of its work on backward-looking options, in August 2019 the working group presented its assessment of viable backward-looking methodologies. In addition to this, the working group disclosed its analysis of the various methodologies used to calculate a fixed spread, representing the difference between EURIBOR and €STR-based term structure methodologies.

Forward-looking methodology

In March 2019, as part of its work on forward-looking options, the working group recommended a methodology based on tradable overnight index swap (OIS) quotes for calculating a €STR-based forward-looking term structure.

To support this recommendation, the working group on euro risk-free rates conducted a public consultation to gather market feedback.

As a follow-up to its recommendation to build a €STR-based forward-looking term structure based on €STR OIS committed quotes, in October 2019 the working group on euro risk-free rates invited interested benchmark administrators to present their proposals at the working group meeting of 16 October 2019. Five administrators responded to the working group’s call for expressions of interest.

On 2 July, EMMI-ICE IBA, IHS Markit, FTSE Russell and Refinitiv provided an update to the working group regarding their plans for the production of forward-looking rates.

High-level recommendations for fallback provisions

In November 2019 the working group published a report with high-level recommendations for fallback provisions in contracts that reference EURIBOR.

Financial accounting implications

In November 2019 the working group published a report on the financial accounting implications of the transition from EONIA to the €STR and the introduction of €STR-based fallbacks for EURIBOR.

Risk management implications

In October 2019 the working group published a report on the risk management implications of the transition from EONIA to the €STR and the introduction of €STR-based fallbacks for EURIBOR. The report focuses mainly on the risk management implications for banks but also touches on additional challenges facing the asset management and insurance sectors.

Guiding principles for the introduction of fallback provisions

In January 2019 the working group published a set of guiding principles for the introduction of fallback provisions in new contracts for euro-denominated cash products.