Banks could be forced into Euribor submission

Banks could be forced to submit information for the Euro Interbank Offered Rate (Euribor) under new legislation, European Commissioner Michel Barnier said today.

The new laws, which the European Commission will propose in the second quarter of 2013, will attempt to bolster the integrity of Europe's interbank benchmarks and draw a line under the rate-setting scandals that have surfaced across the globe.

Barnier today insisted the benchmarks were in the interests of the market and the general public alike, and that banks should not unduly cast the benchmarks aside.

Euribor is a reference rate based on the average interest rates at which banks in the euro area lend funds to one another. It is determined by the interest rates submitted by a rate-setting panel, which currently consists of 39 banks following the decision of three banks in January – BayernLB, Rabobank and Raiffeisen – to quit the panel.

Barnier warned that any banks considering withdrawing from the contributing panels of any interbank benchmarks may be "required to re-join", as the 2013 proposals will include the power to impose mandatory submissions on banks.

The commissioner said he will enlist the help of other regulators – the European Banking Authority (EBA) and European Sales and Marketing Association (Esma) – to determine which banks should be forced to take part in the rate-setting process.

Raiffeisen Bank International suggested to CentralBanking.com that only the 30 largest banks in terms of business volume in the money market should be subject to mandatory participation – a group that would not include Raiffeisen.

A spokesperson explained Raiffeisen's decision to abandon the rate-setting process. "Interbank business has been steadily becoming a less meaningful component of the business [for Raiffeisen] over the course of the last few years, and is no longer viewed as a core part of operations."

Nonetheless, the bank would "of course fulfil" any legislation that affected its operations, the spokesperson said.

A spokesperson for BayernLB explained the German bank left the Euribor panel for "strategic reasons", but was unwilling to comment on Barnier's statement.

Barnier noted that interbank benchmarks are important for the transmission of monetary policy in the euro area, a sentiment shared by the European Central Bank (ECB).

The ECB welcomed the possibility of mandatory participation, which it said would prevent disruptions to the production process of the benchmarks.

"For such rates to remain representative, it is essential that there is an appropriate level of bank participation in the respective panels," the ECB's statement said.