Since 2014, regulators, industry bodies and various working groups of private-market participants have engaged in the reform of benchmark interest rates known as Interest Bank Offered Rate (IBORs). Some benchmarks are being reformed to change the methodology of how the interest rate benchmarks are calculated (for example, reforms to Euro-specific benchmarks EONIA and EURIBOR begun in 2019). The London Interbank Offered Rate, known as LIBOR, are being phased out entirely. LIBOR, the most widely used benchmark for short and medium-term interest rates is published in GBP (British Pounds sterling), USD (US Dollar), EUR (Euro), JPY (Japanese Yen) and CHF (Swiss Franc). Other demising or subject to reform IBOR benchmark rates includes the Tokyo Interbank Offered Rate (TIBOR) for Japan Yen, the Canadian Dollar Offered Rate (CDOR) for Canadian Dollar, the Hong Kong Interbank Offered Rate (HIBOR) for Hong Kong Dollar and the Singapore Interbank Offered Rate (SIBOR) for Singapore Dollar.
LIBOR is currently published by the ICE Benchmark Administration (IBA) based on submissions from panel banks of rates charged for unsecured lending to other banks in specified tenors and currencies. The UK Financial Conduct Authority has announced that:
- immediately after 31 December 2021 all current settings of Sterling, Euro, Swiss Franc and Japanese Yen LIBORs, and the 1-week and 2-month settings of US Dollar LIBOR will cease publication;
- immediately after 30 June 2023 all other current settings of US dollar settings will cease publication.
Currency-specific working groups have identified preferred currency specific RFRs to replace LIBOR. RFRs are generally based on overnight deposit rates or, in the case of USD RFRs, repurchase agreements (repos). RFRs differ from LIBOR in a number of other important ways:
- LIBOR is a term rate and so is set prior to the commencement of the interest period to which it relates. This allows a borrower future certainty as it will be able to calculate at the outset of the interest period the amount of interest which will be payable. Most RFRs are backwards looking and are published the day after the period to which they relate meaning the borrower may only know shortly before or on the interest payment date how much interest it owes.
- The calculation of LIBOR includes a premium for bank credit risk for the relevant tenor. RFRs do not include the same premium, and therefore, the interest rate payable on an RFR benchmark rate may be different to LIBOR.
- LIBOR is administered in London and published on or about 11:00 AM London time for a number of different currencies. Each currency-specific RFR is administered locally, and rates are published at different times.
A working group on euro risk-free rates was established in 2018 by the European Central Bank, the Financial Services and Markets Authority, the European Securities and Markets Authority and the European Commission to identify and recommend alternative risk-free rates and transition paths. These will serve as an alternative to current benchmarks such as EONIA and EURIBOR. On 13 September 2018 the working group recommended €STR as the new euro risk-free rate. The European Central Bank published €STR for the first time on 2 October 2019.
The working group has made a number of recommendations on how to smoothen the transition to the €STR before EONIA is discontinued on 3 January 2022. The working group is also looking at identifying €STR-based fallbacks for EURIBOR for a scenario in which EURIBOR may permanently cease to exist.
While the reformed EURIBOR is expected to continue for now alongside €STR, other IBORs, such as EUR LIBOR are expected to be discontinued and market participants are expected to transition to €STR.
For more information on each currency and how IBORs are changing for CHF LIBOR, EONIA, EURIBOR, EUR LIBOR, HBOR, JPY LIBOR, TIBOR, SIBOR, SOR, CDOR and USD LIBOR please refer to Interest Rate Benchmarks and our table on What are the replacement benchmarks and which IBORs are changing?
Read our Frequently Asked Questions on Navigating the IBOR Transitions:
Navigating the GBP LIBOR Transition - Frequently Asked Questions
Navigating the US$ LIBOR Transition - Frequently Asked Questions
Read the IBOR Transition Risk Disclosure which sets out more detail on the key risks firms and counterparties are facing as we transition away from LIBOR, EONIA and other interest rate benchmarks.
What are our plans?
MUFG has implemented an IBOR Transition programme, working with various regulators, the industry and our clients to manage the successful transition of this market change. We are committed to working in partnership with our clients to support them through this transition and we encourage you to keep up to date with the latest industry developments in relation to IBOR reform and to consider its impact on your own business.
If you would like any further information or have any questions, please do not hesitate to email us at IBOR@nl.mufg.jp
For further background information, the following websites contain useful information:
- Intercontinental Exchange
- Financial Conduct Authority
- Bank of England
- Alternative Reference Rates Committee
- European Central Bank - Euro short-term rate
- European Central Bank - Interest rate benchmarks
- European Money Markets Institute
- European Money Markets Institute EONIA questions and answers (pdf)
- International Swaps and Derivatives Association, Inc. Financial Stability Board
This page and its related content are not intended to be, and should not be relied upon as, legal, financial, tax, accounting or other advice. We are not providing you with any such advice and you should consult your own advisors for advice on the reform of interest rate benchmarks and the related risks. We make no representation and provide no warranty as to the information set out in herein, which is based on information from third parties, and you should not rely on any such information as constituting a representation or warranty. The content herein is not intended to be comprehensive and was last updated on 18 May 2021. Material developments may have occurred since this last update. This page and its related content do not consider risks to you from interest rate reform and there may be other issues that are not highlighted below. Without limiting the foregoing, this page and its related content do not address issues specific to any particular sector or business. We are not acting as your fiduciary or adviser and the provision of this information to you will not give rise to any duty of care. We assume no responsibility for any use to which these this information may be put. The areas covered herein are continually evolving and you should consult the relevant sources. Links to some of the relevant working and industry groups are at the end of this document.