Euribor Case Study

1a) Euro Interbank Offered Rate (Euribor)- rates offered to prime banks based in the Eurozone on euro interbank term deposits

Background info:
Euribor was first published on 30 December 1998. 1 January 1999 was the day that the Euro as a currency was introduced. In the years, before a lot of domestic reference rates like PIBOR (France) and FIBOR (Germany) existed.
There are currently 8 different kinds of Euribor rates where they are selected to ensure that the diversity of the euro money market is varied accordingly and reliable. 1b) EURIBOR is based on average interest rates established by a panel of around 40 European banks (panel banks) that lend and borrow from each other. Some of these banks include HSBC France, Deutsche bank,
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The interest rates that are used for size of the market is about an average of about 180 trillion dollars which includes mortgages, student loans and credit card loans. Even a slightest change in the Euribor rate can impact the global market greatly. The panel size of the banks and the calculation methodology played an important role in the potential effect of the manipulation. In terms of financial institutions, traders can distort the Euribor benchmark interest rate by making the cost of inter-bank trading cheaper or more expensive depending on how they want it to benefit their financial institutions. Sometimes, it is used to cover the financial troubles of banks. Another reason can be that banks wanted to make more profits using an easier way. Looking from an individual's point of view, the rates also determine the amount of loan that needs to be repaid, where a rigged rate might affect in people unable to pay the loan. Currency traders also watch the Euribor rates constantly and make bets which also contributes to the mass market. With a rigged Euribor, it can lead to a financial crisis and the global market would go into recession. Not only that, since the fines that needs to be paid are very large, when the banks are caught manipulating the rate, it causes the banks to revise their interest rates on loans which affects individuals who loans from banks and it causes a vicious cycle. The Euribor rate is supposed to provide protection from the volatility of the euro-dominated securities market. By fixing or rigging the Euribor rate, other European banks could be misled and be greatly exposed to the volatility of the euro securities which could greatly increase their risk resulting in potential capital loss. With the past events of

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