 I'm here with Cornelia Holthausen, she's the Deputy Director General of the Market Operations at the European Central Bank, and she's in charge of benchmark rates. So Cornelia, thanks for taking the time today. Tell me what exactly when it comes to benchmark rates, what exactly do market participants need to prepare for, what do they need to expect? They have to prepare for quite a lot. You see the whole benchmark landscape is changing on a global level, and some benchmark rates are being reformed, others will be discontinued and need to be replaced by new benchmark rates, and this will require a lot of adaptation work by all market participants. If you look at the euro area, we have two important benchmark rates. The first one is Ionia, and there very urgently banks and other market participants will have to take action, because Ionia will be discontinued in a few years time by the end of 2021, and will be reformed for an interim period, and market participants will have to adjust to that. And the other very important interest rate benchmark is the Uriber, which is currently undergoing reform, but users will still have to embed fallbacks into all contracts that are referencing Uriber. So it's a lot of work for everybody. So you're using quite a lot of terminology here and abbreviation, so help me out a little bit. Why exactly does a benchmark rate do, why do we need it? Yeah, so if you imagine that the two of us would enter into a loan contract, let's say you would lend me some money for say three years, and we would have to agree on an interest rate. We may want to choose a variable rate that changes with the market movements. And in that case, we would use such a benchmark rate, which typically reflects the average of interest rates for a certain, say, majority that are out there in the market. So it's usually an average of transactions that market participants do. So we could agree, for instance, that you would lend me the money for Ionia plus 2%, or Uriber plus 1%. And in that way, we would be dependent on these benchmark rates, and many other market participants would do similar contracts. It's not quite clear yet to me why we need this big changeover that you explained initially. Yeah. The reason is that some of these benchmark rates are no longer considered as representative or adequate for market use. If you look at Ionia, Ionia has, over time, seen a decline in the number of transactions that are used to calculate the rate. And it's no longer considered to be really representative for the whole market. And that's one reason why it should be reformed. And if you look at Uriber, it was actually up till now based on expert judgment rather than actual transactions that are there in the market. And this made it prone to manipulation and potentially fraud. And this was a reason why globally it was decided to have some reforms for this benchmark rates in order to make them more robust and reliable. And then what is the exact role of the European Central Bank in all of these, when it comes to benchmark rates, but notably when it comes to these upcoming changes? So I should say that first and foremost, benchmark rates are used by the market and they should also reflect market transactions. So it's the market responsibility to also create and decide on such benchmark rates. However, the ECB has also a keen interest that the financial markets work smoothly. And in particular the money market, because our monetary policy really depends on the smooth transmission via the money market. And that's why we have an interest in that these markets function well. And because of this reason, the ECB decided to be engaged on two different fronts. First of all, the ECB decided to publish an overnight benchmark rate, the so-called Euro short-term rate, as of October 2019. And this rate can then be used in all contracts that are currently referencing EONIA. And secondly, the ECB decided together with other public European institutions to launch a private sector working group. The goal of this working group is to make recommendations on how the future landscape of benchmark rates in the Euro area should look like. So they could make recommendations on which types of benchmarks to use and how to transition from the current situation to the new world. So why exactly don't we just change the way these benchmark rates are calculated, or the ECB, and then that would make them reliable again? The thing is it's easier said than done. So the administrator of EONIA made some efforts to reform EONIA, but it turned out that because banks were leaving the panel that contribute to the interest rate, it became less and less representative. And fewer transactions are now reflected in that rate. So eventually the administrator decided to stop the reform, and that would mean to stop the whole process of making EONIA become compliant with any benchmark regulation. And this is when the ECB decided to step in and offer a rate that we would base on our statistical data collection that we do with banks. So the ECB is in a position to have sufficient amount of data to publish an overnight interest rate that could be used instead of it. And as regards your RIBER, the administrator is currently reforming it, and so it should become a good reliable rate. So let's assume I'm a small bank and I use EONIA. What do I need to do to prepare for what's going to come up or for the changeover? So there are several steps that you should take. I should say let's focus on the short term first. The first change that will take place will be in the beginning of October. As I said, as of that date, the ECB will publish a euro short term rate. And at the same time, the administrator of EONIA will change the methodology. It will in fact follow the euro short term rate. And that implies that as of October it will only be published in the morning of the next trading day instead of the evening before as it's currently done. So that means this rate is only available then the next morning. And all the users of EONIA have to adjust to this process. So it's a technical adjustment to be able to cope with this new timing. So this is a very short term topic that users will have to take up. And then in the more medium term, banks and other users will have to prepare for the fact that EONIA will be phased out. At the end of 2021, EONIA will no longer exist. And users of EONIA will have to take care that until then they have rewritten all the contracts that are referencing EONIA. So some contracts will have matured by then, but others will still be ongoing. And they will have to change to the new reference rate and also embed fallbacks. And again, as a bank, this sounds like rather work intensive or maybe even complicated. So what kind of support can I expect from the ECB if I'm a bank? Yeah, so as I said, ultimately the responsibility lies with the users of the rate to implement this change. However, both the ECB and also the working group on risk-free rates have published already some recommendations, guides how to best manage the transition. So I would recommend every user to look at those documents and follow the steps. For instance, there's a document on the legal implementation. There will be other documents referencing to how to adjust best the contracts and the internal processes. And as regards your riber, banks will have to embed fallbacks into their contracts that are referencing your riber. And I should say it's not only banks that have to do this adjustment. Because for your riber, there are many users out there, and this also includes retail users. For instance, in many countries, it's very common to base mortgages on your riber, so really also households will have to adapt to these changes. Okay, sounds like a piece of cake. No, it doesn't, but no, it's a big change. And it will reform the markets, I would think. And everybody really has a big responsibility in doing the changes and implementing them. Yeah, thanks a lot for explaining. I feel really enlightened now. Thank you. You're welcome.