Euribor to split from Eonia panel as banks quit amid probes

Cleaning up after rigging scandal

The panels of banks that set Euribor and Eonia rates will be separated next month to encourage banks to resume contributions to the benchmarks after the interest rate-rigging scandal.

Euribor-EBF, the Brussels-based industry group that runs the benchmarks, today asked former contributors to re-join one or both of the groups used to calculate the measures, according to a statement on its website. It added that new European Union rules will include the power to force them to submit to Euribor, a gauge of banks’ estimated cost of borrowing in euros over different periods of time.

Firms are withdrawing from benchmarks amid growing concern that they may face lawsuits, fines and criminal penalties if found to have engaged in wrongdoing after three banks were fined more than $2.5 billion for rigging the London interbank offered rate and Euribor. UBS AG and Rabobank Groep are among six firms that stopped Euribor submissions this year, leaving 36 members.

“By dividing Eonia and Euribor they are making it easier for banks to be involved in Eonia, because it’s based on real transactions rather than opinions,” said Roger Francis, a credit analyst at Mizuho International Plc in London. “There is no space for ambiguity or manipulation in Eonia.”

Eonia, a euro-area interbank overnight lending rate, is calculated as a weighted average of unsecured lending transactions carried out by the panel members, according to the website. Euribor is derived from a daily survey of lending quotes conducted for Euribor-EBF by Thomson Reuters Corp.

Euribor Exits?

 “Splitting it from Euribor removes a problem for Eonia, but it could accelerate banks’ exit from Euribor,” Francis said. “That’s perhaps why we are reminded that the European Commission might compel them to take part.”

The industry group said earlier this week that Landesbank Baden-Wuerttemberg and Landesbank Hessen Thueringen, two German state-owned lenders, would stop contributing to the panels after today.

Raiffeisen Bank International AG of Austria quit the Euribor panel in January because its interbank lending business had become “less meaningful” and it no longer made sense for the Vienna-based firm to take part, spokeswoman Jackie Kaye said at the time. Rabobank left Euribor after evaluating its contribution from a “business-economics” point of view, the Utrecht, Netherlands-based lender said in January. Zurich-based UBS said it would leave the panels after exiting most of its debt-trading businesses.

The European Central Bank “welcomes the introduction of separate Eonia and Euribor panels” and “strongly encourages banks to remain in, join or re-join the reference rate panels in order to ensure an appropriate level of participation,” it said in a statement.

Eonia, or the euro overnight index average, was set at 0.073% yesterday, down from 0.329% a year ago. Three-month Euribor, which tracks bank-loan rates over that maturity, was little changed at 0.2% today, down from 0.668% a year ago.

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