By Neelabh Chaturvedi
The European Banking Federation Friday said it may establish
separate panels to set two widely followed interest rate
benchmarks, in an effort to encourage banks that have withdrawn
from the rate-setting process to rejoin it and in doing so
safeguard the reliability of these benchmark rates that influence
trillions of euros of transactions in financial markets.
The panel that sets the influential euro interbank offered rate,
known as Euribor, and the euro overnight index average, known as
Eonia, will not necessarily be the same anymore from June 1, the
EBF, which coordinates the publication of these rates, said in a
statement.
"This decision was taken in the context of the reform of the
benchmark's governance and rate-setting process. It aims to
encourage banks to re-join, or join the respective reference rate
panels according to their level of activity and knowledge in the
respective market segments," according to the statement.
The European Central Bank's governing council welcomed the move
and encouraged banks to remain on, to join, or re-join the
reference rate panels to ensure a broad spread of participating
banks.
The panel that sets Euribor and Eonia has shrunk in recent
months, with some banks attributing their decision to withdraw from
it to the low volume of transactions on interbank markets.
Citibank, Rabobank (RBK.YY) and UBS (UBS) are among those banks
that have left the panel recently. Landesbank Baden-Wuerttemberg
(LANDBW.YY) and Landesbank Hessen-Thueringen (LHT.YY) will leave
the panel after Friday.
Interbank lending benchmarks--particularly Euribor's
London-based cousin Libor--have been rocked by scandals over the
manipulation of rates. Possible collusion in the setting of
Euribor--a closely followed benchmark which influences interest
rates on trillions of euros of loans, mortgages, and
derivatives--is also being investigated by the European Union.
Euribor is the rate at which major European banks say they will
lend to each other. Eonia is the weighted average of all overnight
unsecured lending transaction rates in the interbank market
initiated within the euro area by panel banks. The Eonia rate
closely mirrors the European Central Bank's official rates and
forward Eonia rates can serve as a guide for future ECB monetary
policy.
"The continuity and representativeness of such key reference
rates need to be ensured to prevent disruptions to the functioning
of the financial markets, while the specification of reference
rates and the regulatory framework are being refined," the ECB said
in a statement
Write to Neelabh Chaturvedi at
neelabh.chaturvedi@dowjones.com