For more than 40 years, Interbank Offering Rates (“IBOR”) have been benchmark rates that banks are charging each other for unsecured lending. IBORs have also been used as a benchmark rate for pricing and valuing bonds, derivatives, mortgages and other instruments. The IBOR rates are being determined by a panel of banks and have been exposed to fraud in recent years.
To counter the fraud, global working groups are set up to define a new reference rate and system. IBOR will disappear by the end of 2021 and will be replaced by secured or unsecured transaction-based alternative Risk-free Rates (RFRs). By the end of 2019 EURIBOR started to use a hybrid-calculation and transformed from a ‘quote-based’ to a ‘transaction-based’ methodology. On October 2nd 2019, ECB launched an alternative for the EURO overnight rate (EONIA) called ‘Ester which is transaction-based as well.