ECB Seeks Feedback on Publication of Compounded €STR Rates

ECB would provide benchmark users with compounded values of the euro short-term rate (€STR) for selected maturities. The publication of compounded €STR term rates is expected to encourage the adoption of robust fallback provisions by the industry. Compounded rates based on the €STR would benefit from the proven robustness, as the €STR is built on an active overnight borrowing market. This implies that, even in times of market uncertainty, the compounded €STR rate will remain robust because the overnight markets remain, by far, the most liquid. Also, in a number of major jurisdictions, such as the US and the UK, the risk-free rates are expected to take over from London Inter-bank Offered Rate (LIBOR) for a large variety of contracts, on the discontinuation of the benchmark. Accordingly, the Federal Reserve Bank of New York and BoE also committed to publishing compounded risk-free rates and/or daily indices. Hence, the publication of a compounded €STR would support international consistency. This initiative to publish the compounded term rates would be in line with the:

• Recommendations of FSB, to encourage and support wider use of the near-risk-free rates and, hence, the €STR, by providing a “golden source” for the compounded €STR values
• EU Benchmarks Regulation, to provide a rate that may be used in contractual fallback provisions by users of the EUR LIBOR and EURIBOR, who are required to prepare in their contingency planning for a scenario in which the EUR LIBOR and the EURIBOR may cease to exist

Related Links

• Press Release
• Consultation Paper (PDF)

Comment Due Date: September 11, 2020