As part of an effort to restore trust in the scandal-hit Euribor interest rate, regulators said the number of maturities that make up the benchmark for trillions of euros of lending should be cut from 15 to seven.
Europe’s top banking and markets regulators told the European Banking Federation, which oversees Euribor, to strengthen governance procedures to ensure no banks try to manipulate the rate. Cutting the number of tenors would “have the benefit of simplifying” submissions.
The measures “will give clarity to benchmark providers and users,” Steven Maijoor, chairman of the European Securities and Markets Authority, said in an e-mailed statement today. They “are an immediate step to be taken in advance of potential wider changes in the supervisory and regulatory framework for financial benchmarks.”
Global watchdogs are levying fines and criminal penalties against lenders accused of fiddling interest-rate benchmarks such as Euribor and Libor, the London interbank rate. Raiffeisen Bank International AG and Rabobank Groep said this year they would leave the 40-strong Euribor panel, while Citigroup Inc. and DekaBank Deutsche Girozentrale left the group of euro rate- setters last year.
The benchmarks are meant to represent the rate at which banks can borrow from other lenders in a specific currency over various periods. Authorities are investigating whether more than a dozen banks altered their benchmark-rate submissions to profit from derivative trades or to appear more financially stable.
The three-week maturity should be cut from Euribor, along with the two, four, five, seven, eight, 10 and 11-month tenors as a minimum, the regulators said. The EBF should perform regular governance audits and publicly disclose the results, ESMA and the European Banking Authority said. The proposed changes weren’t agreed upon by the regulators until last night.
“We broadly support the recommendations and they go in the direction of the reforms we have started discussing and implementing,” Florence Ranson, a spokeswoman for Euribor-EBF, the non-profit association in Brussels that sets Euribor rates, said in a phone interview.
The International Organization of Securities Commissions, a global regulatory body, also said it’s seeking views on possible measures to overhaul the setting and governance of such rates, according to a statement on its website today.
The way benchmarks such as Euribor are set raises concerns over “potential inaccuracy or manipulation,” IOSCO said.