From IBOR to alternative risk free rates (RFR)

The upcoming phase-out of the interbank reference rates (IBORs) in favour of alternative risk free reference rates (RFR) means notable changes in the global financial system. The IBORs will either be terminated or undergo changes to the methodology behind them, as their reliability and robustness has been severely challenged in recent years. The aim of the new RFRs is to make sure that, in the future, reference rates will be transaction based and more transparent in order to create a more fair, robust and reliable market. 

Danske Bank monitors the developments on a continuous basis. This page will be updated regularly.

Latest developments

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. 

Background for the Transition

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. 

Developments in other currencies 

Questions on IBOR?

Email the IBOR transition team

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