Banks May Have to Join Libor-Euribor Panels to Stop Exodus

Europe’s top financial regulator said he’s considering forcing banks to participate in setting Libor and Euribor rates after lenders including Citigroup Inc. and HSBC Holdings Plc pulled out of some panels amid the rigging scandal.

Regulators will draw up a list of lenders that should be forced to participate in the setting of interbank rates “in view of their involvement” in those markets, Michel Barnier, the EU’s financial services chief, said in an e-mailed statement today.

“Any banks considering withdrawing from the contributing panels should therefore take into account that they may be required to rejoin,” Barnier said. The plans to force banks to submit data for rate setting will be included in draft legislation on benchmark setting that the European Commission will present in the first half of this year.

Euribor-EBF, the group that administers the setting of Euribor rates warned last month that it may face an exodus of banks from its rate-setting panel. Rabobank International, the biggest Dutch savings bank, withdrew from the panel that sets the euro interbank offered rate in January, while Deutsche Bank AG said this week that it would end participating in some Euribor-EBF rates.

Rate-Rigging

Royal Bank of Scotland Group Plc this week became the latest lender to be fined for manipulating rates. The bank’s $612 million fine comes after penalties for Barclays Plc and UBS AG for their role in rate-rigging. The scandal fueled public anger toward banks, and pushed regulatory probes of lenders to the top of the political agenda.

Much work remains to be done to ensure benchmarks “can be relied upon to be a true reflection of prevailing borrowing costs,” Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland, said in an e-mail. It’s understandable “that the authorities are keen to involve as many of the major institutions as they can in the setting of these key rates.”

The European Central Bank today welcomed Barnier’s intention to legislate, and urged banks to take part in rate- setting.

“The Eurosystem strongly encourages banks to remain in, or join, the Euribor panel to prevent potential disruptions to the functioning of the financial markets while the regulatory framework is being refined,” the ECB said in a statement on its website.

U.K. Regulator

“For such rates to remain representative, it is essential that there is an appropriate level of bank participation in the respective panels,” the Frankfurt-based ECB said.

Martin Wheatley, the managing director of the U.K. Financial Services Authority, called last year for oversight of Libor to be handed to the U.K.’s financial regulator, and dozens of the currencies and maturities that make up the benchmark axed, under proposals designed to revive confidence in the rate.

Wheatley was requested to carry out a review into the rate setting by U.K. Chancellor of the Exchequer George Osborne.

Since September, Raiffeisen Bank International AG, Rabobank, Bayerische Landesbank, DekaBank and Citigroup have withdrawn from the setting of Euribor, according to Euribor-EBF data.

Ten Banks

Since July, as many as ten banks have dropped out of the setting of the Eurepo Index, which is also managed by Euribor- EBF. These lenders include Societe Generale SA, UBS AG and HSBC. Euribor is derived from a daily survey of interbank lending rates conducted for Euribor-EBF by Thomson Reuters Corp.

Cedric Quemener, the manager at Euribor-EBF declined to comment.

Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies.

The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

Arjun Singh-Muchelle, head of EU affairs at the British Bankers’ Association, declined to immediately comment.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

Enlarge image

EU Financial Services Chief Michel Barnier

Jock Fistick/Bloomberg

Regulators will draw up a list of lenders that should be forced to participate in the setting of interbank rates “in view of their involvement” in those markets, Michel Barnier, the EU’s financial services chief, said in an e-mailed statement today.

Regulators will draw up a list of lenders that should be forced to participate in the setting of interbank rates “in view of their involvement” in those markets, Michel Barnier, the EU’s financial services chief, said in an e-mailed statement today. Photographer: Jock Fistick/Bloomberg

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Feb. 1 (Bloomberg) -- The London interbank offered rate is the basis for more than $300 trillion of securities. The banks that set the rate stand accused of rigging it for years to boost profits. Five years after alarm bells first sounded, regulators are handing out fines and criminal sanctions to those responsible for rate manipulation. This story is featured in the March issue of Bloomberg Markets Magazine. Bloomberg Television's Mark Barton reports. (Source: Bloomberg)