Benchmark reform

We are a benchmark user and therefore must comply with several requirements, including the Benchmarks Regulation (BMR). Due to a diminished confidence in the reliability and long-term stability of interest rate benchmarks such as the Euro Interbank Offered Rate (EURIBOR), Euro Overnight Index Average (EONIA) and the London Interbank Offered Rate (LIBOR), regulators worldwide have initiated reforms to interest rate benchmarks to ensure the reliability and robustness of interest rate benchmarks. As a result, interest rate benchmarks such as EURIBOR, EONIA and LIBOR are being replaced or adjusted and, consequently, financial products that refer to such interest rate benchmarks may be impacted.

We closely monitor market developments in respect of the global benchmark reform and, where relevant, we work with our clients to agree on any required changes to existing contracts.

Background

Interest rate benchmarks play a key role in the financial markets. Hence, uncertainty in respect of the integrity of interest rate benchmarks could form a serious risk for the financial sector. Taking into account the various scandals involving benchmark manipulation that came to light over the past several years, pressing questions around the reliability and validity of certain widely used interest rate benchmarks have arisen. Against this background, the G20 requested the Financial Stability Board (FSB) in 2013 to fundamentally review major interest rate benchmarks and initiate plans for reform. In 2014, the FSB published its recommendations on interest rate benchmarks, which included measures to (i) strengthen the so-called Interbank Offered Rates (IBORs), in particular by anchoring them to a greater number of transactions, where possible; (ii) improve the processes and controls around submissions; (iii) identify alternative near-risk-free rates (RFRs); and (iv) encourage derivative market participants to transition new contracts to an appropriate RFR, where suitable.

Benchmarks Regulation

Within the EU, the EU regulators responded by adopting the Benchmarks Regulation (BMR) to ensure the accuracy and integrity of interest rate benchmarks. The BMR came into effect on 1 January 2018, with certain provisions subject to a phase-in period. The BMR defines what an interest rate benchmark is and imposes requirements on benchmark administrators, contributors and users. The BMR also stipulates that supervised entities, like NWB Bank, use interest rate benchmarks have a robust plan that sets out a course of action in case an interest benchmark rate ceases to exist or materially changes (please be referred to our Benchmarks Regulation Compliance Plan). Under the BMR, NWB Bank is obliged to use interest rate benchmarks published by authorised or registered benchmark administrators in the EU when issuing financial instruments and entering into loan agreements. Also, fallback language must be incorporated into NWB Bank’s financial products to manage the temporary or permanent cessation of interest rate benchmarks.

Developments

Interest rate benchmarks such as EURIBOR, EONIA and LIBOR are impacted by the global benchmark reform. There have been several developments regarding certain interest rate benchmarks that we use in our financial products, including (but not limited to):

  • €STR: the European Central Bank (ECB) started publishing €STR from 2 October 2019 onwards. €STR is the alternative euro risk-free rate set to replace EONIA. In addition, as of 15 April 2021 the ECB will start publishing compounded €STR average rates and a compounded index based on the euro short-term rate;
  • EONIA: as the administrator of EONIA, the European Money Markets Institute (EMMI) announced that it would change how and when EONIA is published (i.e. from 2 October 2019 onwards, EONIA is fixed at €STR plus 8.5 bps and published on T+1 at 9:15 AM CET). EMMI further announced that it will stop publishing EONIA after 3 January 2022 and only €STR will be published as of that moment;
  • Hybrid EURIBOR: as per 2 July 2019 EMMI has been authorised as the administrator of the new hybrid EURIBOR under the BMR, the implementation of which was completed on 28 November 2019. Since the new hybrid EURIBOR is compliant with the BMR, EURIBOR can continue to be used for existing and new financial products;
  • LIBOR: the UK Financial Conduct Authority announced in 2017 that it would no longer compel or oblige panel banks to submit the data on which LIBOR is calculated after the end of 2021. On 5 March 2021 the UK’s Financial Conduct Authority announced that certain LIBOR settings (all seven euro and CHF LIBOR tenors, overnight, one-week, two-month and 12-month GBP LIBOR, spot next, one-week, two-month and 12-month JPY LIBOR, and one-week and two-month USD LIBOR) will permanently cease immediately after 31 December 2021. Publication of the overnight and 12-month USD LIBOR settings will permanently cease immediately after 30 June 2023.

Below is an overview of the recommended alternatives for commonly used interest rate benchmarks.

 

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In line with these developments we are, amongst other things, and where possible following market practice, (i) amending our derivatives contracts to replace the EONIA benchmark rate with the €STR benchmark rate, where relevant; (ii) no longer issuing instruments based on interest rate benchmarks that are being phased out, such as LIBOR; (iii) incorporating the relevant alternative interest rate benchmarks and required fallback language in our debt issuance programs; and (iv) working with our clients to agree on any required changes to existing financial instruments and loan agreements, such as the implementation of fallback language. Also, we will continue to update our clients on the continuing developments in respect of the interest rate benchmarks reform.

Internal working group

We have established a working group dedicated to the global benchmark reform, which is continuously analysing our affected products, and implementing appropriate, benchmark reform related measures.

If you have any questions about developments related to benchmark reform, do not hesitate to get in touch with your regular NWB Bank contact.

More information 

More information about the benchmark reform developments is available on the following web page of the Dutch Banking Association (available both in English and Dutch): https://www.nvb.nl/themas/toezicht-financiële-markten/rentebenchmarks-wat-zijn-de-ontwikkelingen/

You may also refer to our Benchmarks Regulation Compliance Plan.

The information on this site is not intended to be a complete or exhaustive overview.

 

More information?

Contact
Tom Meuwissen
Long-term funding and Investor relations
+31 70 416 62 70
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