Fears Mount Over Euribor After Latest Departure

The very existence of one of Europe's most important interest rate benchmarks is being put into question by the decisions of some banks to stop contributing it, an official for the product's organizers said Wednesday.

"I am very concerned with the on-going situation, absolutely, this is a serious situation," said Cedric Quemener, a director at Brussels-based Euribor-EBF, which coordinates the publication of the Euro Interbank Offered Rates, known as Euribor.

Mr. Quemener was talking to Dow Jones Newswires after it emerged that Austrian lender Raiffeisen Bank International AG (RBI.VI) became the third bank to stop quoting Euribor this year, following the withdrawal of the Netherlands' Rabobank and German lender Bayerische Landesbank from the rate-setting panel last week.

"While the immediate situation is not really the problem, as we still have 39 banks on the rate-setting panel, if we have more banks leaving we may have no more Euribor," Mr. Quemener said.

Euribor is used as a reference rate for financial products worth trillions of euros. Like its more widely used London counterpart, Libor, it has been the subject of intense scrutiny in recent months after a series of stories about banks' attempts to manipulate both rates.

European authorities have said they want to see fundamental reform of benchmark interest rates to reduce the risk of manipulation and fraud. The European Central Bank has openly called for Euribor to be based on actual transactions, rather than non-binding quotes.

Mr. Quemener noted that Euribor has a "reputational risk" attached to it and that banks leaving the panel set a bad example to other contributing banks.

In a stark admission of the extent of the current problem Mr. Quemener added that if banks continue to leave the rate-setting panel, "the European commission might envisage to make contributing mandatory."

Mr. Quemener was, however, optimistic, that there would be no new exits at least in the immediate future.

"Banks normally have to give around 10 days notice before they stop quoting -- as of this moment there are no other banks looking to leave the Euribor panel," he said.

Write to Nick Cawley at [e-mail]

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