ECB Letter on Preparation of Banks for Interest Rate Benchmark Reforms
ECB Banking Supervision issued a letter to CEOs of significant institutions regarding the ongoing global benchmark reforms mandated by FSB. The letter is intended to seek assurance that institutions' senior managers and boards understand the risks associated with the global benchmark reforms and are taking appropriate action to ensure a smooth transition to alternative or reformed benchmark rates, ahead of the deadline of the end of 2021, as specified in the revised EU benchmarks regulation. The letter also highlights that certain changes in the methodology for relevant benchmark rates, as outlined in the letter, will be introduced as soon as October 2019.
The letter discusses the imminent transition from the euro overnight index average (EONIA) to the new euro short-term rate (€STR) and the developments regarding the euro interbank offered rate (EURIBOR); it also covers the changes introduced for any relevant benchmark rates, in any currency, for contracts that significant institutions may be holding. ECB is committed to launching the €STR on October 02, 2019. The €STR will reflect the wholesale euro unsecured overnight borrowing costs of euro area banks. In addition, the private sector-led working group on euro risk-free rates recommended a defined transition path for EONIA. At the beginning of 2022, EONIA will be discontinued by its administrator. In response to this letter, ECB requests the following by July 31, 2019:
- A board-approved summary of an institution's assessment of key risks related to the benchmark reform and a detailed action plan to mitigate such risks, address pricing issues, and implement process changes
- Contact points at the management level, who are in charge of overseeing the implementation of these action plans
In addition, ECB is requesting a reply, by September 15, 2019, to the questionnaire containing certain quantitative and qualitative fields to help assess the significance of benchmark reform and transition for the institution.
Related Link: ECB Letter (PDF)
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Risk-Free Rates, Interest Rate Benchmarks, EURIBOR, Benchmarks Regulation, FSB, ECB
Related Articles
HKMA Consults on Supervisory Policy for OTC Derivatives Transactions
HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
PRA on Regulatory Capital and IFRS 9 Requirements for Payment Holidays
PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.
HKMA on Fintech Adoption and Innovation by Banks in Hong Kong
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB Consults on Guide for Managing Climate and Environmental Risks
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA Assesses Interlinkages Between Recovery and Resolution Planning
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB Publishes Final MREL Policy Under the Banking Package
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
US Agencies Amend Interim Final Rule on Transition Period for CECL
US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.
ECB Releases Results of March Survey on Credit Terms and Conditions
ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.
