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IBOR transition

Background about the benchmark rate reform

Updated: January 2022

As part of an ongoing reform of benchmark rates in international financial markets, some interbank rates, called "IBOR" or “Interbank Offered Rates”, are being phased out. In accordance with the recommendations of regulators, central banks and industry groups, IBOR rates are being replaced by risk-free rates (“RFRs”). These are based entirely on observed transactions rather than on member surveys (panel banks’ submissions based on “expert judgment”).

If you have a National Bank credit or loan product whose interest is calculated based on an IBOR, you’ll find the answers to your questions below. This information will be updated regularly as market developments occur. If you have any questions, please contact your account manager. 

Frequently asked questions

Several IBOR rates are currently being replaced. In the table below, we’ve narrowed the list down to only the rates used for National Bank financing products:

Type of IBORs  End date Expected replacement benchmark rate
CDOR  Not yet determined but June 30, 2024 has been recommended by the Canadian Alternative Reference Rate Working Group. Meanwhile, CDOR co-exists with CORRA. 6-month CDOR and 12-month CDOR settings have already been discontinued.   CORRA3
USD LIBOR  June 30, 20231. No new credit agreements can use USD LIBOR after December 31, 20212.
EUR LIBOR December 31, 2021. To be noted that EURIBOR (distinct from EUR LIBOR) co-exists with ESTR.
GBP LIBOR December 31, 20211.


1 The official announcement of the cessation was made by the Financial Conduct Authority (FCA), the LIBOR regulator, on March 5, 2021.

2 The announced end date for the USD LIBOR is June 30, 2023, except for 1-week and 2-month settings whose announced end date is December 31, 2021, as is the case for LIBOR rates for other currencies (EUR, GBP, CHF and JPY). However, the FCA and U.S. regulatory agencies expect financial institutions to stop using the USD LIBOR as a benchmark in all new agreements after December 31, 2021. The Canadian prudential regulator, Office of the Superintendent of Financial Institutions (OSFI) has published an industry letter on June 22, 2021 to the same effect.

3 Acronyms for the "Canadian Overnight Repo Rate Average," "Secured Overnight Funding Rate," "Euro Short-Term Rate," and "Sterling Overnight Index Average" respectively.

Risk-free rate
Term rate – rate set at the start of the interest period (prospective): overnight, one week and one, two, three, six and 12 months
Overnight rate – average simple daily rate or compounded in arrears calculated at the end of the interest period (retrospective). Note that a Term SOFR rate is now available in one, three, six and twelve month tenors for use in business loans and related hedging transactions. 
Rates based partly on transactions and partly on member surveys (for example, USD LIBOR is based on about $1 billion in transactions per day)
Rates based on actual transactions (for example, SOFR is based on about $1 trillion in transactions per day, 1,000 times more than the USD LIBOR)
Rates include a bank credit risk component since the levels on which the rates are based are unsecured bank borrowings
Rates include little or no credit risk component as the underlying transactions are collateralized by high quality assets such as government bonds

If your credit agreement was already amended in 2021 to incorporate a fallback provision, the IBOR rate will be replaced by the corresponding adjusted risk-free rate either on the relevant IBOR cessation effective date or sooner by way of early opt-in. Otherwise, we will replace the IBOR rate by the corresponding adjusted risk-free rate when your credit agreement comes up for annual review in 2022.

When we replace the IBOR rate of your credit agreement, if you have an interest rate swap with us to hedge the IBOR exposure of your loan, we will coordinate the amendment of the benchmark rate in your swap contract with the new index rate in your credit agreement. It will be important that the two instruments be modified in a synchronized fashion to avoid creating a mismatch. If you have a swap with us but your credit agreement is with another financial institution (including a syndicated loan where we are not acting as the agent), you will need to contact your derivatives specialist at National Bank to coordinate the conversion of your swap with the amendment of your credit agreement.

The International Swap and Derivatives Association (ISDA) has put in place a protocol to which market participants can adhere to inform their counterparties with derivative contracts that they agree to apply the rate replacement methodology determined by ISDA, which is to use the RFR compounded in arrears with a spread adjustment.

In short, if both parties to a rate swap concluded before January 25, 2021 have signed the ISDA protocol, the ISDA replacement methodology will apply to the transaction upon the discontinuation of the relevant IBOR rate.

For any rate swap concluded after January 25, 2021, the ISDA replacement methodology is integrated into the transaction and refers to the ISDA definitions amended on January 25, 2021. The protocol doesn’t need to have been signed by both parties.

This solution could work for clients whose rate swaps aren’t meant to exactly match the rate applicable to a credit agreement. Otherwise, the replacement of IBOR rates on rate swaps used for hedging should be done in coordination with the replacement of the IBOR in the credit agreement through a bilateral negotiation process between you and National Bank (and any other financial institution in charge of your credit agreement, as the case may be).

The USD LIBOR rate won't be used in any new credit agreement entered into after December 31, 2021, in accordance with regulatory guidelines. All credit agreements renewed after December 31, 2021 will implement the Term SOFR at the time of renewal. Only credit agreements amended to include fallback language before December 31, 2021 will be able to continue using the USD LIBOR until it’s discontinued (index cessation effective date: June 30, 2023) or sooner if parties mutually agree to it.

With regards to the CDOR and EURIBOR rates, we will incorporate fallback clauses once the methodology for replacing these rates has been agreed on and adopted by the banking industry.

As for the GBP and EUR LIBOR rates, they were discontinued on December 31, 2021. All credit agreements will reference the SONIA compounded rate for loans in Sterling and either the ESTR compounded rate or EURIBOR for loans in Euro.

Our Economics and Strategy team has written a detailed background document on the Benchmark Rate Reform. This document, which is regularly updated, provides a comprehensive picture of past, current and future issues surrounding the transition of LIBOR rates and the broader reform of benchmark rates underway in international financial markets. You'll find a list of links to external content from relevant sources that we suggest you check out.

Your account managers and derivatives specialists are available to answer your questions, so please don’t hesitate to contact them. They will be able to direct any question requiring greater expertise to a group of experts at the Bank.


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