The Euro Interbank Offered Rate, or EURIBOR, is one of two reference interest rates used in the Eurozone’s money markets.
Is EURIBOR Simply LIBOR or Federal Funds For Europe?
EURIBOR bears some similarities to other major interbank rates like LIBOR or Federal Funds. It acts as the reference interest rate applied to the unsecured funds major European banks lend to one another, and like LIBOR and Federal Funds, it’s calculated using a survey of “prime banks”. However EURIBOR is intended as a rate for Europe’s money markets so it relies on a diverse, tightly regulated panel of firms to survey. Also, it’s good to keep in mind that EURIBOR is not the same as Euro-LIBOR which are London-based reference rates.
Which Banks Are Paneled For EURIBOR?
Banks surveyed for EURIBOR are those with the highest volumes of business in the Eurozone’s money markets. Currently, the 44 institutions that comprise the panel fall into one of three categories:
- Banks from EU member nations that used the Euro from its inception (1992)
- Banks from current EU members that didn’t use the Euro when it was introduced
- Large banks from non-EU member nations with major operations in European markets.
Here’s how the 44 break down by country. Keep in mind that every EU member isn’t represented and a few non-European banks make the list.
- Austria – 2
- Belgium – 2
- Finland – 2
- France – 7
- Germany – 10
- Greece – 1
- Italy – 4
- Ireland – 2
- Luxembourg – 1
- Netherlands – 2
- Portugal – 1
- Spain – 4
EU Member not in Eurozone:
- United Kingdom – 1
- Denmark – 1
- Sweden – 1
- UBS (Switzerland)
- Citibank (USA)
- J.P. Morgan Chase (USA)
- Bank of Tokyo Mitsubishi (Japan)
How Is EURIBOR Calculated?
The panel of banks provide a quote of the interest rate that they would charge another prime bank to lend unsecured funds over a given maturity. Like other interbank rates, quotes for EURIBOR maturities range from one week to one year. Quotes from each bank must be submitted by 10:45 AM (Central European Time) so that Reuters can process the data and publish the rate at 11:00 AM. EURIBOR is a rounded, truncated mean of the quoted rates provided by the panel banks. The top 15 percent and bottom 15 percent of results are discarded, the remainder are averaged and then rounded three decimal places.
Which Products is EURIBOR Used For?
- Forward Rate Agreements
- Short-Term Interest Rate Futures Contracts
- Interest Rate Swaps
What Else Should We Know?
Notice that while EURIBOR applies to European banks, there are two American banks that sit on the 44 member panel. In the U.S. financial system, J.P. Morgan Chase and Citibank are two of the five largest banks in the country, and with their extensive operations in European markets, they remain exposed to sovereign debt concerns in the Eurozone. Also, EURIBOR isn’t the only major interbank rate used in the European Union; the EONIA is used as a benchmark for overnight lending of unsecured funds between Europe’s major firms and both J.P. Morgan Chase and Citigroup have seats on that panel as well. Lastly, like the composition of the European Central Bank, the EURIBOR/EONIA panels are indicative of the relative importance of each EU member nation’s banks to the overall system, hence shifts in membership can signal strength or weakness in any one nation’s banking sector.