ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265. The tasks and responsibilities of ECB provided for in Guideline 2019/1265 are being updated with respect to the calculation and publication of compounded rates. The framework to consult stakeholders, which is provided for in Article 14 of the Guideline 2019/1265, is also being updated to enhance clarity. The amended guideline shall take effect on the day of its notification to the national central banks of the member states whose currency is EUR. The national central banks shall comply with the amended guideline at the latest from April 15, 2021.
The Benchmarks Regulation (2016/1011) necessitates the adoption of robust fallback provisions in a large number of financial contracts and instruments. In the absence of such fallback provisions, the possible discontinuation in the future of a critical benchmark such as EURIBOR, may have serious repercussions for the functioning of markets and, thus, for the implementation of monetary policy. Overnight rates compounded in arrears are one viable fallback option being recommended by FSB and market participants support the introduction of such rates. Thus, the publication of compounded rates based on historical €STR values by ECB can contribute to mitigating systemic risk in the scenarios of benchmark discontinuation, while promoting a wider use of the €STR and fostering consistency across major currency areas in the fallback options available to market participants.
Keywords: Europe, EU, Banking, Securities, €STR, Interest Rate Benchmark, Benchmarks Regulation, Guideline 2019/1265, Fallback Provisions, EURIBOR, Compounded Rates, Guideline 2021/565, ECB
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