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January 11, 2013 7:56 pm
European regulators have called for a revamp of how the region’s benchmark interbank lending rate is overseen, in an attempt to restore faith in a system marred by the international Libor scandal.
The proposed shift towards greater transparency on how Euribor, the euro interbank lending rate, is calculated and managed comes after UBS and Barclays together paid almost $2bn in fines for manipulating Euribor and Libor, its London equivalent.
The benchmark rates are used by banks to price the cost of everything from mortgages to savings rates, and are both the subject of regulatory investigations.
Regulators at the European Securities and Markets Authority (Esma) and the European Banking Authority on Friday proposed measures, including increasing the independence of the panel overseeing the rate-setting process from the banking industry and simplifying how Euribor is calculated.
Esma and the EBA suggested reducing the number of maturities used for Euribor to increase the rate’s accuracy. The regulators also want more scrutiny over banks’ submission of rates to calculate Euribor – which is based on the average interest rates at which euro banks offer to lend unsecured funds to each other.
“[These measures] should give reassurance that the benchmark is reliable. Of course further changes might be needed going forward,” said Andrea Enria, chair of the EBA.
He added the proposals would go “quite a long way” in boosting confidence in Euribor.
Steven Maijoor, Esma chair, said such moves would “give clarity to benchmark providers and users”.
The proposals come after several banks, including Rabobank and Citi have left the panel that sets the benchmark rate, reducing its membership to 39.
The bank industry body that oversees Euribor – a subdivision of the European Banking Federation – broadly welcomed the recommendations and said it would help to stem the departures.
Guido Ravoet, chief executive of Euribor-EBF, told the Financial Times: “We will have to improve the process in order to give enough comfort to the panel banks, especially on a more precise definition . . . so they have concrete guidance on how to do the quotes.”
The European Commission is reviewing how benchmarks such as Libor and Euribor are compiled and supervised, with a legislative proposal expected before the summer.
These reforms may differ from the interim proposals by Esma and the EBA, and could even go as far as removing responsibility for Euribor from the European Banking Federation.
“One of our concerns is that we now change and within one year we have to change again,” said Mr Ravoet.
The International Organisation of Securities Commissions is also moving forward with its global review of key benchmark rates led by top UK and US regulators Martin Wheatley and Gary Gensler. Iosco on Friday formally launched a public consultation around how the rates should be set and managed and expects to issue guidelines in March.
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