December 20, 2018 / 10:10 AM / 2 months ago

Bankers take first step toward replacing scandal-hit Euribor rate

FILE PHOTO: The headquarters of the European Central Bank (ECB) and the Frankfurt skyline with its financial district are photographed on early evening in Frankfurt, Germany, March 25, 2018. REUTERS/Kai Pfaffenbach/File Photo

FRANKFURT (Reuters) - Euro zone bankers took a first, tentative step on Thursday toward ditching their scandal-hit Euribor interest rate and finding a new benchmark for trillions of euros worth of mortgages and derivatives.

The industry has been at an impasse since it emerged in 2012 that the world’s most widely used gauges of bank-to-bank lending rates, Euribor and Libor, had been manipulated, shaking investor faith in a financial system already battered by the crisis.

A working group of 21 euro zone bankers on Thursday published a possible methodology for calculating a successor to the Euribor series.

Unlike Euribor, this isn’t based on submissions by banks but on actual quotes, that is firm offers to lend at a fixed rate for a certain period, from recognized trading venues, the bankers said in a report.

“A majority of its members expressed a preference for the OIS (overnight index swap) quotes-based methodology,” the group, hosted by the European Central Bank, said.

They opened the report, which also outlines alternative methods based on actual transactions or on futures contracts, to consultation until Feb 1, 2019.

The OIS is based on the ECB’s new overnight rate, Ester. This will be published by next October to replace the EONIA overnight rate, which like Euribor is published by an industry organization, the European Money Markets Institute.

The working group of bankers said the transition should last until the end of 2021 to avoid market shocks.

They proposed a two-year phase-in period in which EONIA continues to exist but is calculated using a fixed spread over Ester.

Reporting By Francesco Canepa; Editing by Kirsten Donovan

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