EUR-LIBOR fallback: Where is EUR-EURIBOR?

I'm preparing my answer to the ISDA consultation on fallback for EUR-LIBOR and EUR-EURIBOR. One element that is missing in the proposed options is the fallback of EUR-LIBOR to EUR-EURIBOR.

It is expected that EURIBOR will outlast LIBOR by several years. A natural, simple, requiring no change of term sheet, and with limited risk management impacts fallback is obviously to replace EUR-LIBOR by EUR-EURIBOR (plus a potential spread).

Why would you not proposed one IBOR as a fallback option for another IBOR?

If EUR-LIBOR fallback is done directly to ESTR and not to EUR-EURIBOR, we may at some stage see substantial movements in the basis spread between EUR-LIBOR and EUR-EURIBOR swaps. Those basis movements could be interpreted as a measure of the substandard nature of the proposed fallback. This could further reduce the incentive for users to sign the ISDA protocol, even for other currencies. They would see directly in the data, without needing any theory or model, to which extend the proposed fallback is not fair for existing trades. More on that to be published in Risk.Net soon.

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