Exclusive-Euribor in expansion mode for the first time since the rigging scandal

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By Marc Jones and Huw Jones

LONDON (Reuters) – Euribor is making its first push to boost the number of banks contributing to its benchmark rate, a decade after a global rigging scandal put its future in question.

But the fact that trillions of euros in financial products, from mortgages to car loans, remain pegged to Euribor means regulators have demanded sweeping changes rather than scrapping the so-called Euro Interbank Offered Rate. .

Jean-Louis Schirmann, CEO of the Brussels administrator of the Euribor, the European Money Markets Institute (EMMI), said that the Austrian Raiffeisen has just become the first bank since 2012 to voluntarily agree to join its panel of contribution.

He is now on a push and in talks to encourage more to join.

“It’s just better to have a more diverse panel,” Schirmann told Reuters, adding, “So hopefully that will open the door for others to consider joining.”

EMMI now calculates rates, which show how much banks charge to lend to each other, using a hybrid mix of actual transactions and estimates, which has so far proven robust.

The Euribor panel numbered around 50 banks in 1999, but numbers plummeted after the rigging scandal as lenders sought protection from the reputational fallout.

Schirmann said there was no firm target as to how many additional banks EMMI would like to involve, although he acknowledged the numbers would not return to their peak.

“It’s certainly not a target or even an optimal size given that it’s transaction-based as well,” he said, adding, “But there is room for more banks.”

Chart: Euribor panel banks https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrozezvm/Pasted%20image%201664784196576.png

IMPORTANT STEP

EMMI is regulated by the European Securities and Markets Authority (ESMA), which said Raiffeisen would contribute to the robustness and reliability of Euribor.

“ESMA invites other credit institutions active in the euro unsecured money market to consider becoming members of the Euribor panel,” ESMA said in a statement on Monday.

The expansion campaign marks a milestone in the post-scandal attitude towards interbank lending rates.

Euribor’s better-known cousin, Libor, once dubbed the world’s largest figure, was used to price derivatives and loans, ranging from mortgages to student loans, totaling $265 trillion at the start. of 2021 in five currencies.

Barclays was fined 59.5 million pounds ($67 million) in June 2012 for attempting to rig Libor and Euribor, the first of several banks to be fined billions of dollars in total .

Central banks have decided that Libor and the euro-denominated “overnight” rate of Eonia should be replaced from the end of 2021 in new business by “risk-free” rates that they would set themselves , based on market transactions that can be tracked and are very difficult for banks to rig.

The use of sterling Libor has been largely phased out, with dollar Libor due to be fully liquidated by mid-2023.

In Europe, however, regulators took a less drastic approach, agreeing that Euribor could still be used after the reforms to guard against rigging. The European Central Bank now publishes its own overnight rate, creating a hybrid system.

“In Europe, it works quite well to have a reformed Euribor, and of course there is also the development of risk-free rates. That has been satisfactory for the whole community,” Schirmann said.

(Reporting by Marc Jones and Huw Jones; Editing by Alexander Smith)

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