European Lending Rate Overhaul Rejected

  • Euribor was set to be calculated based on transactions
  • Libor manipulation hurt confidence in quote-based benchmarks

An overhaul of Euribor, the rate at which euro-zone banks lend each other an estimated $180 trillion a year, was rejected Thursday after a review prompted by the Libor rigging scandal.

“Under the current market conditions it will not be feasible to evolve the current Euribor methodology to a fully transaction-based methodology following a seamless transition path,” the Brussels-based European Money Markets Institute said in a statement.

Rather than switching from a quote-based method to a transaction based system, the EMMI will develop a hybrid methodology, it said.

The EMMI had collected test data from 31 panel banks in 12 countries over six months, in order to judge how new methodology would affect levels of the rate, as well as volatility. The Belgian Financial Services and Markets Authority corroborated the EMMI’s findings, it added.

The European Central Bank and Eurosystem may investigate providing an unsecured overnight data-based benchmark of their own, an ECB spokesman said, but added that “market participants should primarily be responsible.”

Investigations focused on fixing the London interbank offered rate first came to light in 2008, and by the end of 2016, a dozen banks had paid total fines for manipulation of Libor and similar benchmarks approaching $10 billion.

— With assistance by Paul Gordon, and Alessandro Speciale

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