Euribor facing bank exodus on Rabobank departure

Euribor, the base rate for trillions of euros of lending, may face an exodus of contributors after Rabobank Groep’s departure, according to the banking lobby that administers the scandal-hit benchmark.

“If some other very important banks witness Rabobank deciding to leave, they might do the same,” Cedric Quemener, director of Brussels-based Euribor-EBF, which is tied to the European Banking Federation, said in an interview. Rabobank “is a very credible institution” and Euribor “could lose some credibility,” he said.

Rabobank, the biggest Dutch savings bank, withdrew from the panel that sets the euro interbank offered rate on Jan. 3 because of changes in money markets that led to a drop-off in lending between banks and made the benchmark tougher to calculate.

Membership of the now 40-strong Euribor panel has become potentially expensive with the possibility of litigation, fines and criminal penalties for fiddling the rate and the cost of implementing future rules. Utrecht-based Rabobank is the only Dutch lender probed in the global investigations into alleged manipulation of Libor, the benchmark for about $300 trillion of securities around the world.

‘Regulatory Burden’

“There’s an increasing regulatory burden attached to being part of the benchmark in compliance costs and monitoring,” said Roger Francis, an analyst at Mizuho International Plc in London. “There’s also a legal liability if you get it wrong so the cost-benefit analysis doesn’t stack up very attractively.”

Euribor is derived from a daily survey of interbank lending rates conducted for Euribor-EBF by Thomson Reuters Corp. Three- month Euribor, which tracks bank-loan rates over that maturity, was set at 0.192 percent today, little changed from yesterday and down from 1.276 percent a year ago.

Global authorities are investigating whether more than a dozen banks altered submissions to benchmarks to profit from bets on derivatives or make their finances appear healthier.

UBS AG, Switzerland’s biggest bank, must pay $1.5 billion to U.S., U.K. and Swiss regulators for trying to rig global interest rates. The sum is triple the penalties levied against Barclays Plc, which agreed to pay 290 million pounds ($466 million) in June to resolve the U.S. and U.K.’s Libor and Euribor regulatory probes.

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