On Wednesday, the organisation overseeing the Euribor interbank lending rate announced plans to implement significant updates starting in May. These updates are set to increase the number of banks participating in setting the rate, which impacts a wide range of financial products, including mortgages and auto loans, encompassing trillions of euros in value.
Euribor To Start Much-Awaited Changes in May To Attract More Banks
The reputation of interbank rates like Euribor’s counterpart, Libor, suffered greatly due to manipulation scandals. This led to Libor’s discontinuation and its replacement by overnight rates determined by central banks such as the Federal Reserve, European Central Bank, and Bank of England.
The Euro Interbank Offered Rate overhaul, or Euribor, seeks to lessen the workload for contributing institutions through a more streamlined process.
The European Money Markets Institute (EMMI), based in Brussels and responsible for managing Euribor, had suggested changes to the benchmark in October. Following an “overwhelmingly positive response,” EMMI confirmed the implementation of these reforms on Wednesday.
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Jean-Louis Schirmann, EMMI’s CEO, remarked that the reforms would proceed as planned, with the addition of a new control mechanism to manage extreme market situations. However, this adjustment is deemed insignificant.
A vital aspect of the reform is eliminating the obligation for banks to submit tailored estimates under certain conditions when actual transactions don’t occur, thereby reducing administrative and financial burdens on banks.
EMMI has opted for a staggered approach to adopting the new calculation method, transitioning banks individually from the old system to the new one. This step-by-step introduction will begin around mid-May 2024 and span six months.
According to EMMI, feedback from the consultation indicated that the reforms are likely to attract a broader pool of banks to contribute to the Euribor rate.
