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IBOR Transition Guide
IBOR Transition Guide
CONTENTSWhat is changing?
How will IBOR transition a�ect customers?
What are IBORs and how are they used?
Why are benchmark rates important?
Transition from IBORs to alternative reference rates
What alternative reference rates will replace IBORs?
What are we doing to get ready for the changes?
Frequently Asked Questions
Disclaimer
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Banks use benchmark rates as the basis for calculating interest rates for
some products.
Interbank O�ered Rates (IBORs) are the most commonly used benchmark
rates. IBORs are being reformed, and in many cases, replaced.
All banks are currently considering alternative rates to IBORs.
What is changing?
Helping you transition
We will support you to transition through this process
and we will be publishing more information as it
becomes available.
Helping You Transition
Helping You Prepare
While the e�ects of changes to benchmark rates are not yet
fully apparent, this guide should help you prepare.
IBOR Transition Guide, November 2019 1
How will IBOR transition a�ect customers?Contracts which relate to an IBOR may need to be reviewed or amended.
Although the impact of the changes is still unclear, AIB will review and respond to market and regulatory guidance.
In the meantime, customers can also consider if they require guidance from their professional advisors on the possible implications of any changes – including
from a �nancial, legal, accountancy or tax perspective.
We will communicate with customers if changes to products or documentation are required
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What are IBORs and how are they used?The London Interbank O�ered Rate (LIBOR) and the Euro Interbank O�ered Rate (EURIBOR) are forms of benchmark rates used, for example, in the calculation of interest on some of our products.
IBORs are used in all kinds of �nancial transactions. For example, as the basis for calculating
certain interest rates when lending to individuals or corporate clients.
Banks and other organisations also use benchmark rates to value �nancial assets on their
balance sheet.
How are they used?
How were IBORs calculated in the past?
IBORs historically represented an average of the rates at which selected banks estimated they
could borrow money from other banks.
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Why are benchmark rates important?
They are the foundation on which many products are built
Benchmark rates, such as IBORs, are widely embedded in our economy, and
in�uence relatively simple products such as loans, overdrafts and deposits.
They are also used as the basis for more complex products such as securities
and derivatives.
Not all our products relate to IBORs and not every customer will be a�ected by
these changes.
They are widely used in our economy
Banks use IBORs to calculate interest rates when they are lending to individuals or
corporate clients.
IBORs are also used to monitor e�ects of monetary policy decisions, for example,
the European Central Bank and other Central Banks observe impacts of any
changes on market rates.
LOANS
DERIVATIVESDEPOSITS
BONDSSECURITIES
IBOR
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Transition from IBORs to alternative reference rates
As IBORs are key to the �nancial system, they have been subject to increasing regulation
and review.
Regulators and the banking sector are seeking to reform IBORs and in some cases, to replace them with Alternative Reference Rates (ARRs).
IBORs are based on forward looking estimates of how much it costs for a bank to borrow money
from other banks in the interbank lending market. The activity in this market has been declining
gradually. ARRs, such as Risk Free Rates, are being introduced because they are based on
transactions which have already taken place in active markets, making them more accurate
and robust.
Changes are being made to benchmark rates
This transition is currently being scoped and the implications for some products may result in changes for customers
ARRs are alternative benchmark rates to IBORs. They include Risk Free Rates which are overnight interest rates based on transactions which have already taken place
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What alternative reference rates will replace IBORs?
*There are also LIBOR rates in other currencies
Transition to Sterling
Overnight Index
Average (SONIA)
Replacements must be
in place by 31 Dec 2021
GBP LIBOR*
Transition to
Secured Overnight
Financing Rate (SOFR)
Replacements must be
in place by 31 Dec 2021
USD LIBOR*
Reforms have been
made to how EURIBOR
is calculated
No requirement to transfer
to a new rate, but future of
EURIBOR unclear
EURIBOR
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What are we doing to get ready for the changes?
While the e�ects of IBOR transition are not yet fully clear, we will monitor and respond to how the market evolves and regulatory guidance, to help customers with a smooth and e�ective transition.
Investigate & PrepareReview market developments and contribute to industry debate to ensure measures are appropriate. Prepare robust plans for the transition.
Keep Customers UpdatedShare updates and guidance as these become known. We will be updating www.aib.ie/ibortransition
Backing Our Customers Support customers as they adjust to the changes.
If your products or documentation need to change, we will communicate with you.
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Frequently Asked Questions (FAQ)
What are Risk Free Rates?
Risk Free Rates are a type of ARR. They are overnight rates, based on transactions which have already taken place.
What is SONIA?
The Sterling Overnight Index Average which is the new Risk Free Rate for Sterling transactions.
What is a Benchmark Rate?
Benchmark Rates are used in �nancial transactions throughout our economy, for example, to calculate interest rates for loans.
What are IBORs?
Interbank O�ered Rates represent an estimate of how much it would cost a bank to borrow money from other banks. IBORs are published in several currencies and for a variety of interest periods.
What is LIBOR?
The London Interbank O�ered Rate. This is calculated from estimates submitted by a selection of banks in London.
Why are IBORs being replaced?
IBORs are based on forward looking estimates of how much it costs for a bank to borrow money from other banks in the interbank lending market. The activity in this market has been declining gradually. ARRs, such as Risk Free Rates, are being introduced because they are based on transactions which have already taken place in markets which are very active, making them more accurate and robust.
What are Alternative Reference Rates (ARRs)?
They are benchmark rates which are being developed as an alternative to IBORs.
How are Risk Free Rates di�erent to IBORs?
Risk Free Rates are based on information from transactions which have already taken place. They will therefore be less reliant on the judgement of banks.
When do the changes to IBORs come into e�ect?
ARRs for LIBOR need to be in place by 31 December 2021. A timeline for having ARRs for EURIBOR is unclear at this time.
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What is €STR?
The Euro Short Term Rate which is the new Risk Free Rate for Euro transactions.
What is EURIBOR and how is it changing?
The Euro Interbank O�ered Rate. EURIBOR has been reformed to meet the requirements of the EU Benchmarks Regulation, to include in its calculation, information based on transactions that have already taken place. €STR may replace EURIBOR in the future, however it is likely that in the short term, banks will continue to use EURIBOR.
Are all Banks impacted?
All banks which o�er products based on IBOR rates are impacted.
What are we doing to get ready for this change?
We are monitoring this situation and will provide customers with further information as things progress.
What does this mean for me?
If you have a contract with us that relates to an IBOR, this might need to be amended at some stage in the future. If this is the case, we will communicate with you.
What if I am unsure about these changes?
Should you wish to discuss the impact of IBOR transition on any of the products you hold with us, please contact us as outlined below.
What are the next steps?
Whether you are taking out a new product, or you are an existing customer, we are making you aware that IBOR transition may require us to make changes to products or documentation. In either case, if you are a�ected by these changes we will communicate with you.
Where can I go for more information?
[email protected] or your Relationship Manager. In addition the following websites may be useful:
Europehttps://www.ecb.europa.eu/home/html/index.en.html
UKhttps://www.bankofengland.co.uk/
What is SOFR?
The Secured Overnight Financing Rate which is the new Risk Free Rate for Dollar transactions.
Frequently Asked Questions (FAQ)
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DisclaimerThis guide is provided for information only and may not represent the views or opinions of Allied
Irish Banks, p.l.c or its a�liates (collectively, AIB), employees or o�cers. The information contained
in this guide does not constitute and shall not be construed to constitute legal, tax and/or
accounting advice by AIB. AIB makes no representation as to the accuracy, completeness,
suitability or timeliness of such information, which may also be subject to change. This guide may
only be accessed by recipients lawfully entitled to do so.
This guide and any documents provided with it should not be used or relied upon by any
person/entity (i) for the purpose of making investment or regulatory decisions, (ii) to provide
regulatory advice to another person/entity based on matter(s) discussed herein or (iii) in
connection with any transaction, contract or communication.
Recipients of this guide should obtain guidance and/or advice, based on their own particular
circumstances, from their own professional advisors (legal, tax, accounting or otherwise) in light of
IBOR transition as they consider necessary. Any terms set forth herein are intended for discussion
purposes only and are subject to the �nal terms as set forth in separate de�nitive written
agreements. This guide is not a commitment or �rm o�er and does not oblige us to enter into
such a commitment, nor are we acting as a �duciary to you.
Any transaction which you may enter into with AIB will be on the basis that you have made your
own independent evaluations, without reliance on AIB, and based on your own knowledge and
experience and any professional advice which you may have sought in relation to all aspects of
the transaction including, without limitation, legal, accounting and/or taxation advice. In no event
will AIB be liable for any loss or damage including without limitation, indirect or consequential
loss or damage, or any loss or damage whatsoever arising whether in contract, tort (including
negligence), breach of statutory duty, or otherwise, arising out of, or in connection with, your use
of (or failure to use) any information provided in this document.
We encourage you to keep up to date with the latest industry developments in relation to IBOR
transition and to consider its impact on your or your business. You should consider, and continue
to keep under review, the potential impact of IBOR transition on any existing product you have
with AIB, or any new product you enter into with AIB.
Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland. Regulated No. 24173
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