EU To Force Banks To Stay On Euribor Panels

“Interbank interest rate benchmarks are systemic benchmarks which are important for the transmission of the euro area’s monetary policy. The Commission is therefore following developments on Euribor, in particular the recent departure of a number of panel banks.” So began Commissioner Michel Barnier’s speech on interbank interest rate benchmarks.

The statement came out shortly after the Royal Bank of Scotland received a fine for rigging the Libor rate. RBS is among many European bank being investigated for rigging the rate.

Back in December, European Justice Ministers had decided on the criminal sanctions for insider dealing and market manipulation, which stipulated how both offences were defined and sanctioned at European level. Now, the European Commission has announced that it will be proposing further legislation for the Market Abuse Regulation and Directive. “ The Commission will propose further legislation on benchmarks in the second quarter of 2013 in order to further clarify the framework under which benchmarks should operate,” the Commissioner said.

“The continued existence of interbank interest rate benchmarks is also in the interests of the market and public at large,” he continued. “As a result, making submissions compulsory has been decided by the UK authorities in relation to Libor and was also discussed in the Commission services’ consultation paper. Any banks considering withdrawing from the contributing panels should therefore take into account that they may be required to rejoin the panels.”

The Commissioner also welcomed the recent European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) recommendations addressing issues about Euribor governance and control arrangements, as they will give clearer guidelines as to what should be addressed in these panels.

The remarks were welcomed and supported by both the European Central Bank and the European Banking Federation. In its statement the ECB said, “The Eurosystem notes the recent decisions of some banks to withdraw from the Euribor panel…For such rates to remain representative, it is essential that there is an appropriate level of bank participation in the respective panels. The Eurosystem therefore welcomes the Commission’s intention to also include in its legislative proposal the power to compel mandatory submissions for systemically important reference rates, in order to prevent disruptions to their production process.”

The proposals are expected to be made by both authorities in the second quarter of 2013.