ECB wants Euribor revamped after Libor controversy
FRANKFURT |
FRANKFURT (Reuters) - The European Central Bank is demanding an overhaul of the system for setting market interest rates in the euro zone in the wake of a scandal that engulfed banks setting the rival Libor benchmark rate.
In its response to a European Commission
consultation on the future of the 'Euribor' rate, the ECB and the 17 national
central banks under
its umbrella said the system needs more transparency and actual data instead of
just banks' estimates.
There is "significant scope for Euribor
reform," the bank said.
Euribor, the euro interbank-offered rate, and its larger counterpart the London Interbank Offered Rate (Libor) are Europe's key gauges of how much banks pay to borrow from peers. The two rates underpin swathes of financial products
from Spanish
mortgages to derivatives contracts in London.
Regulators are plotting a way forward
after manipulation of Libor led to fines of $450 million (283.6 million pounds)
for Barclays (BARC.L), hardening
resolve for a regulatory overhaul of the methods used to set the price of
credit.
Anti-trust authorities are still
investigating possible manipulation of the Euribor.
Amid a collapse in interbank lending
following the financial crisis, the ECB said Euribor reform should first address
short-term fixes for the benchmark to regain confidence and then move on to more
complete reform in the longer term.
"In the short term, the focus should be on
improving the governance process, as well as on providing a clear road map for
both the regulation and supervision of Euribor," the ECB paper said.
"An increased reliance on
transaction-based figures in the calculation of Euribor should be beneficial...
at a later stage."
The ECB, however, shied away from offering
to supervise the system, saying that European Securities and Markets Authority
(ESMA) and European Banking Authority (EBA)
are better placed than itself, as this would limit conflicts of
interest.
Authority (EBA)
are better placed than itself, as this would limit conflicts of
interest.
Moreover, the central bank urged
cooperation at the European and global level to ensure consistency.
It proposed setting up a system of
'Chinese Walls' within banks, which would minimise risk of improper influencing
of rates.
"Introducing changes to the legal nature
of the Euribor Code of Conduct for contributing panel banks to make it binding"
should be analysed further, it said.
As this step could be tricky - it could
discourage banks from participating as they could face legal sanctions - the ECB
proposed limited sanctions, such as suspension from the panel.
At the same time, eligible banks should be
encouraged to participate, and even the option of compulsion should be
considered.
In the longer term, Euribor should move
toward a more transaction-based approach, where estimates could still play a
role.
"One promising solution may be represented
by the option to combine transaction-based data with survey-based estimates,"
the paper said.
It rejected scrapping Euribor in favour of
an alternative, referring to long-standing contracts and saying such a change
could "entail significant legal and financial stability risks".
Moreover, it is important that, despite a
rise in collateralised lending, there is a need for a benchmark rate for
unsecured funding costs.
(For a copy of the document, click on: here)
(Reporting by Sakari Suoninen, additional
reporting by John O'Donnell in Brussels; Editing by Toby Chopra)
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