Euribor, also known as the Euro Interbank Offer Rate, is a reference benchmark derived from the average interest rates at which banks within the eurozone offer unsecured short-term loans on the inter-bank market. The timeframes for these loans, which are used to compute the Euribor, typically span from one week to one year.
Euribor serves as the standard rate that governs the lending and borrowing of surplus reserves among banks for brief durations, ranging from one week to a year. These brief loans are commonly structured as repurchase agreements (repos), designed to ensure bank liquidity and enable idle excess funds to generate interest returns.
Similar to how individuals and businesses borrow funds from banks, financial institutions themselves engage in borrowing from other banks when the need arises, entailing the payment of interest. This practice takes place within the interbank market.
Euribor, or the Euro Interbank Offer Rate, encompasses a series of five money market rates that correspond to varying maturities: one week, one month, three months, six months, and twelve months. These rates are subject to daily updates and represent the average interest that eurozone banks apply when lending to each other without requiring collateral.
Euribor rates hold a pivotal role as the primary reference rates within the European money market. These interest rates serve as the foundation for determining the costs and rates associated with a wide array of financial instruments, including interest rate swaps, interest rate futures, savings accounts, and mortgages. This is precisely why both professionals and individuals closely track the progression of Euribor rates, given their significant impact on the financial landscape.
Euribor rates hold significant significance as a benchmark for various financial instruments denominated in euros, encompassing mortgages, savings accounts, car loans, and a variety of derivative securities. Similar to the role played by LIBOR in the UK and the US, Euribor plays a comparable role within the eurozone.
The Euribor rate receives contributions from a group of 19 panel banks. These financial institutions are responsible for handling the most substantial volume of transactions within the eurozone money market.
The Euribor rates are established from the average interest rates at which an several European banks borrow funds among themselves.
As of May 2023, the panel banks participating in this process include:
Raiffeisen Bank International AG (Austria)
BNP Paribas (France)
Crédit Agricole s.a. (France)
HSBC France (France)
Natixis / BPCE (France)
Société Générale (France)
Deutsche Bank (Germany)
DZ Bank (Germany)
Intesa Sanpaolo (Italy)
Banque et Caisse d’Épargne de l’État (Luxembourg)
ING Bank (Netherlands)
Caixa Geral De Depósitos (Portugal)
Banco Bilbao Vizcaya Argentaria (Spain)
Banco Santander (Spain)
The Euribor undergoes daily calculation and is made public at 11:00 a.m. (Central Europe Time). While one might assume that the process for determining Euribor, which serves as the interest rate for interbank borrowing, is intricate and automated, it actually relies on a straightforward daily survey shared among participating banks. The calculation comprises three fundamental steps:
Data Collection. Each day at 10:45 a.m., the banks taking part must input the interest rate at which they are prepared to lend or borrow funds for varying maturities, such as one day, one month, and three months. External factors like supply and demand, economic growth, and inflation impact the rates presented by each bank.
Exclusion. The system aggregates these input rates and eliminates the highest and lowest 15% of quotes. This step prevents extreme rate submissions by banks from distorting the Euribor.
Average Computation. At 11:00 a.m., the calculated Euribor is released. The final value is derived from the average of the remaining rates, rounded to three decimal places.
Eonia, known as the Euro Overnight Index Average, is a daily reference rate that signifies the weighted average of unsecured overnight interbank lending within the European Union and the European Free Trade Association (EFTA). It is computed by the European Central Bank (ECB) using data from 28 panel banks.
Similar to Euribor, Eonia serves as a rate employed in interbank lending across Europe. Both benchmarks are provided by the European Money Markets Institute (EMMI). The primary distinction between Eonia and Euribor lies in the durations of the underlying loans. Eonia represents an overnight rate, whereas Euribor encompasses eight distinct rates linked to loans with varying maturities from one week to 12 months.
Additionally, the contributing panel banks differ: while 28 banks contribute to Eonia, only 19 banks contribute to Euribor. Lastly, it’s noteworthy that the calculation of Euribor is overseen by Global Rate Set Systems Ltd. rather than the ECB.
Interbank Offered Rates (IBORs) have traditionally served as interest rate benchmarks across various countries, occasionally exhibiting variations in values. Following the Benchmarks Regulation (BMR) implementation in January 2018, significant IBOR benchmarks were required to undergo reform to align with the new regulatory framework. This reform encompassed benchmarks like Euribor and LIBOR, among others.
As a result, Euribor has undergone reform and is slated to persist until December 2025.
Considering the substantial role the European Union (EU) occupies in the global economy, Euribor does have implications for economies outside the EU, particularly those that borrow funds from European banks.
Nevertheless, in regions beyond the eurozone, alternate fundamental reference rates may be more pertinent in determining interest rates for individual consumers. One such example is LIBOR, a significant benchmark, particularly in the United States and the United Kingdom.
LIBOR (London Interbank Offered Rate) and Euribor (Euro Interbank Offered Rate) are not the same but share similarities. It’s important to differentiate Euribor from the relatively less utilized "Euro LIBOR" rates, which are established in London by a consortium of 16 prominent banks. Both are benchmark interest rates used in the interbank lending market. LIBOR is based in London and represents the average interest rate at which major banks in the UK lend to each other, while Euribor, rooted in the eurozone, reflects the average rate at which eurozone banks offer short-term unsecured loans. They serve as crucial references for various financial products, although their calculation methodologies, contributing banks, and underlying currencies differ.
The level of Euribor, the Euro Interbank Offer Rate, can be influenced by a range of factors that contribute to its apparent increase. These factors may include changes in supply and demand dynamics within the eurozone money market, shifts in the broader economic environment, fluctuations in central bank policies and interest rates, and even geopolitical events that impact investor sentiment. Additionally, concerns about credit risk among banks during periods of economic uncertainty or financial instability can lead to an increase in the perceived risk associated with lending, potentially causing Euribor rates to rise as banks seek higher compensation for potential lending risks.
Euribor rates are found on various financial news websites, economic data providers, and official sources. The European Money Markets Institute (EMMI) is the organization responsible for publishing and disseminating Euribor rates. EMMI’s official website offers daily updated Euribor rates for different maturities, including one week, one month, three months, six months, and twelve months. Additionally, financial news platforms like Bloomberg, Reuters, and major banks’ websites often provide current and historical Euribor rate information, informing you about benchmark rates used in the eurozone’s interbank lending market.
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