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A new milestone on the IBOR reform road

ISDA Fallbacks Supplement and Protocol

On 23 October 2020, the International Swaps and Derivatives Association (ISDA) launched the IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol. The supplement and the amendments resulting from the protocol will take effect on 25 January 2021.

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White paper ‘The curse of the UFR-drag’

Roll risk management for pension funds

For the valuation of pension liabilities, pension funds in the Netherlands use the so-called interest rate term structure (IRTS) with the ultimate forward rate (UFR) curve. This curve basically allows pension funds to apply a higher rate to value their liabilities – the UFR is currently at 1.9% – than interest rates observed in financial markets. Now pension funds are suffering from the so-called UFR-drag.

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Zanders IBOR Assessment

IBOR Reform in Switzerland, Part V

The Financial Conduct Authority (FCA) ensured bank panels support LIBOR, and this is coming to a close at the end of 2021. Currently more than 80% of CHF loans are priced with the CHF LIBOR as a basis. The transition to a new reference rate poses a number of different challenges for the market. This fifth part of our article series presents the checklist of the Swiss National Working Group (NWG) and the Zanders IBOR Assessment.

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Structural Foreign Exchange Risk in practice

Managing Capital Adequacy ratios through an open Foreign Exchange position

Since the introduction of the Pillar 1 capital charge for market risk, banks must hold capital for Foreign Exchange (FX) risk, irrespective of whether the open FX position was held on the trading or the banking book. An exception was made for Structural Foreign Exchange Positions, where supervisory authorities were free to allow banks to maintain an open FX position to protect their capital adequacy ratio in this way.

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The curse of the UFR-drag

Roll risk management for pension funds

For the valuation of pension liabilities, pension funds in the Netherlands use the so-called interest rate term structure (IRTS) with the ultimate forward rate (UFR). This curve basically allows pension funds to apply a higher rate to value their liabilities – the UFR is currently at 1.9% – than interest rates observed in financial markets. Now pension funds are suffering from the so-called UFR-drag.

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