EBA欧洲银行-EBA-BS-2013-002-Annex-1Euribor-Reportfinal_23页_1mb

Summary of the Report on the Administration and Management of Euribor

1. Introduction

A joint EBA-ESMA team conducted a review of the Euribor setting process in October-November 2012, aiming to understand the process and policies. The review complements ongoing legal investigations and is not prejudicial to them. The report outlines the governance structure, the calculation process, and identifies weaknesses and recommendations for improvement.

2. Euribor-EBF Organisation

Euribor-EBF is a non-profit association under Belgian law, founded in 1999, and a sister organization of the European Banking Federation (EBF). It is responsible for administering the Euribor benchmarks, including EURIBOR, EONIA, EUREPO, and EONIA SWAP INDEX.

• It has three full-time staff members, with a budget of EUR 400,000.
• The association aims to become independent from EBF to avoid indirect influence from banks.
• It has established working groups for specific tasks, such as the USD Euribor project, though some groups, like the one analyzing the prime bank definition, have not been successful.
• The General Assembly, composed of 27 national associations, approves the budget, nominations, and strategic issues.
• The Board of Directors, with at least three members, approves the strategy and meets twice a year.

3. Oversight Functions

The Steering Committee (SC) plays a central role in overseeing the rate-setting process.

• The SC is responsible for reviewing panel bank compliance, managing panel composition, and ensuring the quality of submissions.
• The Code of Conduct outlines the SC's responsibilities but lacks strong oversight mechanisms, such as internal controls or conflict of interest management.
• The SC has sent warning letters to banks for non-compliance, but has not yet implemented a formal system for replacing members who fail to attend meetings.
• A new rule was introduced in June 2012 to replace members who do not attend meetings, but it has not been activated yet.
• Euribor-EBF staff has been working to improve governance, including requesting self-certification forms and organizing stakeholder meetings.
• Thomson Reuters acts as the calculation and publication agent for Euribor, following the methodology defined by Euribor-EBF.

4. Calculation Process and Methodology

The Euribor rate is calculated based on quotes from panel banks, representing the rate at which one prime bank offers to another in the euro interbank market.

• Panel banks must submit quotes daily, with the process starting at 10:00 am CET and closing at 11:00 am.
• Thomson Reuters performs sanity checks and verifies submissions before the calculation.
• Outliers (top and bottom 15%) are removed, and the remaining quotes are averaged and rounded to three decimal places.
• The rate is published at 11:00 am, with the highest priority given to timely publication.
• If fewer than 50% of panel banks submit data by 11:00 am, Thomson Reuters may delay the calculation.
• The current panel consists of 42 banks, representing a mix of commercial, cooperative, and investment banks.
• The definition of a "prime bank" remains under discussion, and the SC is reluctant to link it to a credit rating.

5. Analysis of Submissions and Fixings

The report highlights several issues in the submission process:

• Fat finger errors: These occur when banks input incorrect data, such as 1.17% instead of 0.17%. Despite Thomson Reuters' checks, some errors passed through and affected the final rate.
• Lack of changes in quotes: Some banks submitted the same rates repeatedly, indicating potential lack of market awareness or internal processes.
• Dispersion in individual quotes: There is variability in the quotes submitted, which may indicate market instability or lack of consistency.
• Euribor vs. Euro Libor: While Euribor is designed for treasurers, its methodology is similar to Libor, raising concerns about manipulation.

6. Response to the Libor/Euribor Crisis

In response to the Libor crisis, the SC and Euribor-EBF have taken steps to improve transparency and governance:

• Introduced a self-certification form for panel banks.
• Conducted a stakeholder workshop in October 2012.
• Launched a survey to define common contribution guidelines.
• Considered suspending banks that failed to comply, such as Barclays, following UK FSA actions.

7. Weaknesses and Insufficiencies

• Limited oversight: The Code of Conduct lacks robust internal controls and conflict of interest management.
• Potential conflicts of interest: SC members, many of whom are from panel banks, may have conflicting interests due to their roles in market operations.
• Resource constraints: Euribor-EBF has limited resources and plans to recruit an additional staff member.
• Lack of transparency: The Code does not clearly define the criteria for contributing firms and submitters.
• Inconsistent definition of prime bank: The definition is still under debate and not linked to a credit rating.

8. Recommendations

• Streamline the General Assembly's role: Reduce its dependency on the industry and focus on governance and strategy.
• Widen SC membership: Include more stakeholders such as regulators, macro economists, and non-market practitioners to improve independence and oversight.
• Improve internal controls: Require panel banks to implement stronger internal controls and conflict of interest management.
• Enhance transparency: Define clear criteria for panel bank membership and submitters.
• Strengthen the calculation process: Implement more rigorous checks to prevent errors and ensure the accuracy of the benchmark.
• Formalize replacement procedures: Ensure that non-attending SC members are replaced to maintain independence and effectiveness.