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€STR-based fallbacks for EURIBOR

Recommendations on EURIBOR fallback trigger events and €STR-based EURIBOR fallback rates

On 11 May 2021 the working group recommended EURIBOR fallback trigger events and rates. This recommendation supports market participants in developing contractual fallback provisions for a scenario in which EURIBOR may permanently cease to exist. The recommendations are based on the feedback received from the public consultations on EURIBOR fallback trigger events and on €STR-based EURIBOR fallback rates.

In the past, the working group provided some guidance on how to introduce the €STR-based fallbacks to EURIBOR in contracts and 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 circumstances.

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.

Evaluation overview on backward-looking methodologies and analysis of the various methodologies used to calculate a fixed spread representing the difference between EURIBOR and €STR 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, 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 2020, EMMI-IBA, IHS Markit, FTSE Russell and Refinitiv provided an update to the working group regarding their plans for the production of forward-looking rates.

On 18 February 2021, EMMI-IBA and Refinitiv provided a further update to the working group.

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.