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Euribor Facing Bank Exodus on Rabobank Departure, EBF Says

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Rabobank, the biggest Dutch savings bank, withdrew from the Euribor panel on Jan. 3, citing changes in money markets which in the past year have seen a drop-off in lending between banks. Photographer: Jock Fistick/Bloomberg
Rabobank, the biggest Dutch savings bank, withdrew from the Euribor panel on Jan. 3, citing changes in money markets which in the past year have seen a drop-off in lending between banks. Photographer: Jock Fistick/Bloomberg

Jan. 8 (Bloomberg) -- 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. Austria’s Raiffeisen Bank International AG also told Bloomberg today it’s “evaluating its role” in Euribor.

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.

Strategic Reasons

Rabobank’s departure from the panel that sets the benchmark for euro loans followed the exit of Bayerische Landesbank, Germany’s second-biggest state-owned lender, which said it withdrew on Jan. 1 for “business-strategic reasons.” Citigroup Inc. and DekaBank Deutsche Girozentrale left the group of euro rate-setters last year.

Rabobank withdrew from the panels that calculate Libor in yen, Canadian dollars, Swiss francs, Danish krone and Swedish krona in June. The Dutch lender continues to contribute to Libor in dollars, euros and pounds.

“I do sincerely hope this chapter can be closed next year,” Rabobank Chief Executive Officer Piet Moerland told Bloomberg News when questioned about the investigation.

The European Commission sought views last year on how to overhaul the governance and setting of Euribor, Libor and other market benchmarks in the wake of the scandal that has engulfed interbank lending rates.

The Commission, the executive arm of the 27-nation European Union, will come forward with draft legislation later this year, said Stefaan De Rynck, a spokesman for Michel Barnier, the EU’s financial services chief.

“In the future, the Commission may make it mandatory for very large banks to participate in this kind of benchmark,” Euribor-EBF’s Quemener said. Even with Rabobank’s exit from Euribor, “there’s no impact on the final fixing, or on its robustness.”

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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