The EACB welcomes the opportunity to contribute to the consultations by the ECB working group on euro risk-free rates on (i) EURIBOR fallback trigger events, and (ii) €STR-based EURIBOR fallback rates, since many of its members are highly exposed to EURIBOR-referenced contracts with their clients. Therefore, the risk of financial stability and legal uncertainty in case of cessation of EURIBOR as a benchmark in financial instruments and contracts is a very important topic to our members.
• The EACB supports the inclusion of Events 1-3, and 5-6 as trigger events in the event of EURIBOR fallback provisions
• The EACB also supports the non-inclusion of Event 4 as a trigger event, as for example, small changes in the administrator panel of EURIBOR should not be considered an automatic trigger
• The EACB is of the opinion that material changes in the EURIBOR methodology should not be considered an automatic trigger for cessation of EURIBOR and use of its fallback. However, the actual difference in methodology would have to be analysed in any case, and of course, remain compliant with the EU Benchmark Regulation
• The EACB believes that it makes sense for all asset classes to have the same trigger events. At minimum, this should be the same for both cash and derivatives contracts, in order to minimize hedging risks.
• EACB members agree that an €STR-based term structure would be the best way forward for EURIBOR referenced contracts
• A few members have considered that it would be easier if all assets classes and all instruments would have the same simple, transparent and hedgeable calculation methodology, such as a backward looking rate since this might be more straightforward to calculate. However, from a co-operative banking perspective, our members must also take into account that a backward looking rate might not be suitable in particular cases, e.g. mortgages, consumer loans and SME loans, because co-operative banks are mainly retail market oriented. Due to the nature of the retail market, consumers would not feel served by a backward looking methodology, as this will not allow them adequate financial planning of the months ahead (which would be unacceptable to them). Therefore, the EACB supports the use of the forward-looking methodology for all such contracts with retail clients, in particular Mortgages, Consumer Loans and SME Loans.