European regulator tells banks to complete work on Euribor replacement by 2020

 
Jasper Jolly
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The Euribor meeting took place in Frankfurt, the German financial capital (Source: Getty)

European banks have until 2020 to sort out the replacement for the euro version of the Libor benchmark rate, according to the EU markets regulator.

Steven Maijoor, chair of the European Securities and Markets Authority (Esma), told a meeting of a group working on a new benchmark for Euribor that “we need to conclude our tasks before 2020, or at least take into account that the transition period will end by the end of next year.”

The Euribor rates are equivalents to the Libors (London Interbank Offered Rates), representing the interest rates charged by banks lending to other banks, and are used to determine the rates in loans and derivatives contracts with notional values in the trillions of dollars.

Read more: Six traders plead not guilty to Euribor rigging

However, the rate-fixing scandal which shock the banking world after the financial crisis has forced banks and regulators in major economies around the world to contemplate new benchmarks covering sterling, US dollar, euro, Swiss franc, and Japanese yen rates.

According to minutes published today from the 26 February meeting, Maijoor said the decision over a new rate is a “real financial stability concern”, although emphasised that it should be led by the private sector given its use in commercial contracts.

He added: “Another clear message coming out of today’s discussions is the sense of urgency. While benchmarks are not making the headlines in the newspapers on a daily basis, the issues as we have been discussing them here today are a real cause of concern.”

Read more: The EU just fined three banks - including HSBC - €485m over Euribor

A particularly thorny issue faced by the working groups, including one set up by the Bank of England, is how to deal with legacy contracts, which can expire well after the dates by which the benchmarks might not exist.

“There is still a long way to go to achieve substantial results on, for example, the term structure and legacy contract problems,” Maijoor said.

He also pointed out that the prevalence of consumer mortgages indexed to Euribor adds an extra problem for the banks, with the likelihood of a public backlash if a new benchmark significantly impacts repayments.

Read more: Serious Fraud Office takes 11 to court over Euribor rigging

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