Danske Bank monitors the developments on a continuous basis. This page will be updated regularly.
Latest developments
Hybrid EURIBOR transition is now complete
In Danske Bank, we follow the IBOR transition carefully, and the amendments to the methodology behind EURIBOR (the Euro Interbank Offered Rate) in particular. On 28th of November, the European Money Market Institute (EMMI) announced that the phase-in of all the current Panel Banks to the new EURIBOR hybrid methodology was completed. This is another important and awaited step towards the future usability and sustainability of EURIBOR going forward.
The new hybrid EURIBOR
The main driver behind the transition of EURIBOR was the need to be compliant with the Benchmark Regulation (BMR). The plans for the reformed EURIBOR was approved as being BMR compliant in July 2019 by the Belgian Financial Authority, and the implementation is now complete.
Compared to the former EURIBOR, the hybrid EURIBOR is both more robust and transparent. In its essence, the reform consisted in moving EURIBOR from a panel banks quote-based methodology to a new hybrid methodology in which the rate is tied to transaction data to the highest extent possible. Only if sufficient transaction data is unavailable, the methodology resorts to more subjective sources such as modelling techniques or input from panel banks. According to EMMI, hybrid EURIBOR will, in addition to being BMR compliant, be an important contributor to a more fair, transparent and representative market in which the risk of market manipulation is minimized.
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EURIBOR is used widely across many different banking products and any change to its methodology is of interest to both Danske Bank and our customers. EURIBOR is a daily reference rate published by EMMI, representing the rate at which credit institutions in the EU can borrow wholesale funds in euros in the unsecured money markets. EURIBOR is calculated for 1-week, 1-month, 3-month, 6-month and 12-month tenors, and published at or shortly after 11:00 a.m. CET on each TARGET 2 business day. EURIBOR, like LIBOR therefore, is a forward-looking term rate. Approximately €109 trillion of derivative contracts are linked to EURIBOR.
Learn much more on the EURIBOR transition on the EMMI website
More info?
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With regard to EURIBOR, Danske Bank expects the transition to be seamless. EMMI, the administrator of EURIBOR, has received approval under the Benchmarks Regulation for EURIBOR and therefore sudden changes in the implementation are unlikely. This means that EURIBOR is not expected to discontinue in a foreseeable future. With respect to sudden value changes when transitioning, this too is unlikely, as the new EURIBOR fixing is being implemented gradually by transitioning panel banks to the new methodology one by one. Danske Bank does not expect any changes to client contracts or products in use by clients.
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Danske Bank expects CIBOR to be provided in the years to come by the new administrator, Danish Financial Benchmark Facility ApS (DFBF).
At present, we expect CIBOR to be provided based on the existing methodology and we do not expect any changes to client contracts or products in use by clients.
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Danske Bank expects that the administrator Finansielle Referanser AS will continue to provide NIBOR. Based on the publications from Finansielle Referanser AS Danske Bank expects that Finansielle Referanser AS will soon implement a revised methodology to calculate NiBOR in order to make NiBOR comply with the requirements under the Benchmarks Regulation.
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Swedish Banker's Association has established a working group to develop a complement and/or alternative to STIBOR. The objective
is to create a short-term interest rate in line with those in other currency areas.
STIBOR is a critical benchmark Sweden has not yet begun a transition from STIBOR to an alternative reference rate.
Developments in other currencies
Other News
Transition from EONIA to €STR
On the 2nd of October 2019, the new EURO short-term rate (€STR) was published for the first time by the ECB. On the same date, EONIA stopped as an independent fixing. Instead, EONIA is now calculated as €STR + a fixed spread of 8.5 basis points (bp.)
In order to give the markets time to transition fully to €STR, EONIA will continue to be published until the end of 2021. As of the 3rd of January 2022, EONIA will no longer be published.
This transition is one of many steps in a significant paradigm shift to strengthen the methodology behind reference rates so that the methodology is based more on actual transactions and less on estimates. This will strengthen the benchmarks and make them more resilient and robust.
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No. Your current EONIA facilities will continue unchanged for now. However, after the 2nd of October 2019 EONIA will be calculated as €STR plus a spread of 8.5 bp.
Your EONIA facilities will have to be converted to a new interest rate before before the 31st of December 2021, as this is the end-date for the transitional period granted by the European authorities. This new interest rate will most likely be €STR or possibly €STR plus a spread.
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The spread was calculated by ECB observing the difference between EONIA and the theoretical €STR (the so-called pre-€STR) in the period between the 17th of April 2018 and the 16th of April 2019.
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We recommend that €STR is used from the 2nd of October. However, EONIA will still be offered as an option for facilities that expire before the end of 2021.
EONIA will officially be discontinued at the end of 2021. As the market for €STR grows and holds more liquidity, it will be natural to prefer the use of €STR over EONIA.
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While your EONIA facilities will continue as usual (until end 2021), the publication time of the EONIA fixing will change. As EONIA will be published as €STR plus a spread the publication time will follow €STR. €STR will be available at 08:00 CET based on transactions made on the previous trading day (also referred to as T+1). Hence, the publication time of EONIA will move to 09:15 CET. As a consequence, EONIA will also be published one day later than is the case today. While this does not have a financial impact, it can have significant practical implications that differ from counterpart to counterpart. Please contact your Relationship Manager in Danske Bank if you would like to know more.
What does it mean for me as a Danske Bank customer?
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Benchmark rates are used to determine interest rates and payment obligations for a vast number of financial products such as for instance loans, bonds and derivatives. In Europe, the most used benchmarks are EURIBOR (Euro Interbank Offered Rate), EONIA (European Over-Night Index Average) and LIBOR (London Interbank Offered Rate).
Due to a number of manipulation scandals and decreasing activity and liquidity in the underlying markets of several of the interest rate benchmarks, the financial regulatory authorities have expressed concerns with respect to the current benchmark rates over the years. In 2014, the Financial Stability Board published recommendations to reform the market for reference rates and move to the use of risk-free rates (RFRs). Separately, in 2013 the IOSCO published its Principles for Financial Benchmarks, which were endorsed by the G20 leaders, and have led to regulative initiatives globally in order to strengthen the credibility and representativeness of interest rate benchmarks.
A key objective of the transition is the creation of an interest rate market based on actual transactions. This will lead to a more transparent, reliable and representative interest rate market. Danske Bank fully supports this objective and will therefore be ready to offer €STR products as soon as the new rate is published from 2nd of October 2019.
The EONIA-€STR transition is only the first among a series of IBOR transitions which will be coming over the next few years.
Background for the Transition
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Questions to the introduction of €STR are well answered in this FAQ.
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A thorough report describing expected impacts and possible mitigations through a number of recommended action points until the first publication on the 2nd October 2019, and before final cessation of EONIA on the 3rd January 2022. The report covers most, if not all, product types affected by the transition from EONIA to €STR, and also provides recommendations in relation to the change in publication time from T to T+1, collateral and settlement, and to pricing and valuation models. The report is essential, albeit rather technical and detailed. Read the report here.
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Describes more in detail the design and framework around €STR, among other things: data collection, publication and contingency arrangements. Click here to open.
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A short description of benchmarks and their usage, including links to further reading further reading here.
