Interest Rates Benchmark Reform

With this page, we aim to inform you on the upcoming changes on interest rate benchmarks that are expected to transition to alternative risk-free rates. You can find necessary information and transition timeline below.
Should you need further information, please contact your account manager.

Why are some interest rate benchmarks being reformed or discontinued?
Following the significant changes in financial markets since the global financial crisis, interbank market is not as active for banks to fund themselves as they used to. Decline in the liquidity of the interbank markets is one of the key drivers for reform and transition away from LIBOR.

What are the replacement interest rate benchmarks?
Alternative reference rates, also called risk free rates (RFR) are planned to be used as alternatives to IBOR rates when needed. RFRs are overnight and nearly risk-free rates capturing the real market transactions, whereas IBORs are forward-looking term rate quotations that include bank credit risk.
Below you can find an overview of changing interest rate benchmarks and the alternative rates. Most benchmarks are expected to transition by the end of 2021 and replacement rates have been recommended by respective industry working groups.

How could you be affected?
This benchmark reform will likely impact your financial products, administrative systems, transaction processes. Contracts linked to existing benchmarks, will require amendments to include reference to alternative rate (RFR) prior to the current rate becoming unrepresentative.
DHB Bank is working towards an efficient transition. We will contact you if you have an IBOR-linked contract that does not include appropriate fallbacks and/or may require a transition to RFRs. 

What are some of the challenges of using risk free rates?
LIBOR is a forward-looking term rate quotation (for USD, GBP, CHF, JPY and EUR) for seven tenors (overnight/spot, one week, one month, two months, three months, six months and 12 months). Hence, the LIBOR-linked rate in a contract is known at the start of the relevant interest period. RFRs are overnight rates and therefore the rate is not known in advance.

What are the plans for forward-looking term risk-free rates?
Various national RFR Working Groups have stated that any forward-looking term rates that may become available are only intended for use in certain products or in certain circumstances. There is no certainty yet for which RFRs there will be forward-looking term rates and to which products these rates would be applicable.

How have transition timelines changed as a result of recent global developments?
With Covid-19 shifting the regulatory agenda, the end of 2021 deadline for most benchmarks has not changed. According to recent announcements, it appears that overnight, 1M, 3M, 6M and 12M USD LIBORs will exist until mid-2023 (see above table). Please note that the potential June 2023 end date relates primarily to existing transactions. Regulatory agencies encourage entering into new contracts with RFRs as soon as practicable, at the latest by end 2021.