Launch of €STR - Questions for Jérôme Grivet
Launch of €STR – Questions for Jérôme Grivet, Deputy Chief Executive Officer of Crédit Agricole S.A. and sponsor of the GCA Benchmarks project
In line with decisions by the G20 and recommendations by the Financial Stability Board (FSB), benchmark indices are currently being reformed across all major financial markets. These reforms are designed to strengthen investor and customer protection, particularly in interest rate markets. Given the huge volumes of instruments and financial contracts that use these benchmarks, this is a huge undertaking.
In Europe, the creation of the €STR index is also aligned with implementation of the Benchmarks Regulation (BMR). It replaces Eonia, which will be withdrawn following its final publication on 3 January 2022.
€STR is administered by the European Central Bank (ECB). It is based on a broader range of underlying transactions so as to optimally reflect liquidity conditions. This new eurozone overnight benchmark rate is therefore more robust than Eonia as calculated up to 30 September 2019 (using a calculation methodology not authorised under the BMR). Consequently, for the transitional period from 2 October 2019 to 3 January 2022, Eonia will be determined on the basis of the €STR.
How quickly will the €STR be adopted?
Adoption of €STR is not a legal requirement. It is a recommendation by a private sector working group, encouraged by the ECB. This working group, in which Crédit Agricole plays a very active role, has recommended arrangements for transitioning to the €STR and is calling for its rapid adoption, since Eonia is set to disappear in January 2022.
Like all major European banks, Crédit Agricole needs to implement €STR as quickly as possible. All Group entities have made preparations to be able to offer products using €STR as early as possible, starting with capital market activities from today. For example, the European Investment Bank has appointed CACIB to manage its inaugural €STR issue.
Are other interest rate indices being created?
The €STR could serve as the basis for a new benchmark rate to replace Euribor, should the latter be withdrawn.
New overnight benchmark indices have also been launched, for example in the United Kingdom (Sonia) and the United States (SOFR). As the €STR is doing for EUR, they could serve as replacements for LIBOR in GBP and USD respectively.
How is the Crédit Agricole group getting ready?
As a reminder, the Group Benchmarks project was launched to prepare all our business lines and help our customers transition to the new benchmark rates. The project is also helping entities comply with the European BMR regulation.
The Benchmarks project has been broken down by each affected entity to anticipate the operational, financial and legal impacts of the transition.
It is vital that we support our customers to ensure they can also adopt €STR under the best possible conditions. Some entities have already stepped up their support arrangements.
The transition from Eonia to the €STR is the first major step to be managed by the project. It will help prepare for us for forthcoming transitions involving other benchmark indices.