What is IBOR?
Interbank Offered Rates (IBORs) are one of the most commonly used benchmarks for interest rates. They are referenced in financial products such as derivatives, bonds, loans, structured products and mortgages and form the basis on which interest payments under those products are calculated.
Why is IBOR being reformed?
The unsecured interbank market has become less liquid since the financial crisis and IBORs are no longer seen as robust provide the input for the LIBOR Rate. Authorities around the world are requiring improvements by strengthening the methodology behind existing IBORs or by creating new alternative reference rates (ARRs) to replace the existing ones. The EU Benchmark Regulation sets out criteria for a reference rate to be allowed to use in financial contracts and requirements for fallback provisions in case the reference rate becomes unavailable in future.
Interest rate benchmarks: Current status / Assumptions
||Current reference rate
||Cease to exist
||LIBOR GBP ²
||Cease to exist
|Cease to exist
||Fallback rate: €STR
||Fallback rate: Not determined
||Fallback rate: Reformed NOWA
||Fallback rate: DESTR
1) The one week and 2 month USD libor setting will cease after 2021, the remaining term settings expected to remain until mid 2023.
2) Term rate – a fixing for a specific term, e.g. 1 or 3 months, “forward-looking” since the rate applied for the next 1 or 3 months is fixed in advance.
3) Overnight rate – a fixing for one day. When interest period is longer (e.g. 1 or 3 months), products are also called “backward-looking” since the rate applied is known at the end, looking back on the daily rates during the period.
Expected to cease existing
LIBORs (GBP, USD, EUR, CHF and JPY)
All LIBORs , except for certain USD LIBOR settings, are expected to cease to exist by end of 2021 and to be replaced by alternative reference rates, which are available and in use as overnight rates.
Uncertain whether / when forward-looking term rates will be available, but backward-looking rates will likely be the standard for most products and currencies.
Read more on the LIBOR reform on ISDAs webpage
Read more on the USD LIBOR reprieve on FCAs webpage
Expected to cease to exist by end of 2021 and be replaced by €STR through fixed rate +8,5bps.
Expected to continue
Nordic IBORS ( STIBOR, CIBOR an NIBOR)
Expected to be available for the foreseeable future.
Fallbacks in case of a future cessation are being developed.
Expected to be available for the foreseeable future. A new “hybrid EURIBOR” is in place and approved under the EU benchmark regulation, the hybrid EURIBOR is a clarification of the existing Underlying Interest of EURIBOR, combined with adapting a robust and BMR compliant methodology.
How will I as a client be affected?
The transition to new reference rates will impact SEBs product offerings. SEB is working hard to map and manage existing agreements affected by the transition. Our main objective being to minimise the client impact through this transition.
It is important for clients to identify exposures to IBOR rates and gain an understanding whether this may have a financial or operational impact. Especially LIBOR transactions that expire after 2021, which will need to be changed.
What is SEB doing?
We are working continuously to identify, coordinate and follow up on relevant activities to ensure that our customers experience a smooth transition from IBORs to alternative rates.
We are following market standards and will adapt to the new reference rates in relevant financial products and parts of our operations. We will facilitate the use of other risk-free rates if and when they are made available.
Communication with affected customers is taking place continuously. If you have any questions about the transition, you are very welcome to contact your Client representative.
This page has been compiled by SEB Large Corporates & Financial Institutions, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”) to provide background information only.
Opinions, projections and estimates contained in this report represent the author’s present opinion and are subject to change without notice. Although information contained in this report has been compiled in good faith from sources believed to be reliable, no representation or warranty, expressed or implied, is made with respect to its correctness, completeness or accuracy of the contents, and the information is not to be relied upon as authoritative. To the extent permitted by law, SEB accepts no liability whatsoever for any direct or consequential loss arising from use of this page or its contents. The analysis and valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties; different assumptions could result in materially different results. The inclusion of any such valuations, projections and forecasts should not be regarded as a representation or warranty by or on behalf of the SEB Group or any person or entity within the SEB Group that such valuations, projections and forecasts or their underlying assumptions and estimates will be met or realised.