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    ECB Letter on Preparation of Banks for Interest Rate Benchmark Reforms

    July 03, 2019

    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

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