Fallback plans for discontinuation or significant change of benchmarks
Jyske Bank A/S has fallback plans for situations where benchmarks are no longer published or changed significantly.
Our fallback plans, which are robust and maintained on an ongoing basis, apply to credit agreements, loan agreements and derivatives transactions, etc. using reference rates, categorised as benchmarks according to the Benchmark Regulation.
Fallback plans are activated when a benchmark is suddenly discontinued, for instance due to special market conditions or for technical reasons, and when a benchmark is phased out at a longer notice, based on legislation, recommendations from authorities, benchmark administrator’s decision etc.
In case of a sudden discontinuation or a significant change of a benchmark there will only be little possibility of informing in advance about the change.
The implication of fallback plans for benchmarks to our clients
If a benchmark, for instance CIBOR3, is changed significantly or ceases to exist, and you have:
- a credit or a loan agreement stipulating that the rate of interest is determined on the basis of CIBOR3 + a premium
- entered into a derivatives transaction, for instance an interest-rate swap, where payments are determined on the basis of CIBOR3 + a premium
there is usually a need in future to use a new, corresponding reference rate or representative rate (replacement benchmark) based on Jyske Bank’s fallback plans. You will be contacted and informed about the termination or change of the given benchmark, which replacement benchmark to be used instead as well as any consequences it may have for you.
How Jyske Bank determines a replacement benchmark
In some cases, you will already have entered into an agreement on a replacement benchmark. If this is the case, this agreement will still apply to you unless the use of another replacement benchmark than the one agreed on has been determined under EU or national law.
If a replacement benchmark is introduced by law, such benchmark must be used.
In all other instances, Jyske Bank endeavours via a decision to determine a replacement benchmark to act in accordance with market practice and follow official recommendations, recommendations from benchmark administrators and national as well as international trade associations.
If relevant recommendations and a market practice have not yet been established, Jyske Bank will determine an alternative rate considered representative based on the principles which internationally in general form the basis of replacement benchmarks.
Use of replacement benchmarks
A replacement benchmark may deviate from the originally agreed benchmark because it often measures another market and is therefore determined in a different way. Therefore, the originally agreed premium will most likely be adjusted so that the aggregate new interest rate/interest payment will in the best possible way correspond to the originally agreed aggregate interest rate/interest payment.
How are Jyske Bank's fallback plans determined?
The Jyske Bank Group has a Benchmark reference group following the development in benchmarks used in the Jyske Bank Group and ensures that the fallback plans are updated on an ongoing basis. The benchmark reference group is responsible for pointing to benchmarks which are expected to be used as a replacement benchmark for a benchmark used in the Jyske Bank Group which is discontinued or changed materially.
Likewise, the benchmark reference group initiates the internal fallback plans when a need arises to exchange a benchmark with a replacement benchmark.
It is the intention of the Jyske Bank Group that the Jyske Bank Group's fallback plans reflect the market practice agreed at a national, Nordic or international level, as benchmarks are used in connection with transactions between banks etc. and clients and among banks themselves.