Don’t bank on Euribor surviving 2020
Euribor’s administrator is confident that its reforms to the benchmark will make it eligible to be published and used after the Benchmark Regulation’s transition period ends. But don’t bank on it.
With the publication of the officially endorsed Ester benchmark still a year away, the administrator of Europe’s two most widely used benchmarks, the European Money Markets Institute (EMMI), has been hard at work reforming Euribor so that it may be compliant with new European rules on reference rates. But EMMI’s outlook for Europe’s Ibor may be a little optimistic.
Benchmark rates that don’t comply with the European Benchmarks Regulation must no longer be used by January 2020. EMMI has already said Eonia won’t comply, but has been working on reforming Euribor so that it will.
On October 17, EMMI published a paper saying that the administrator is “confident” that its new hybrid methodology – which still relies primarily on transactions from panel banks but uses “other market-related pricing sources when necessary” – is compliant with BMR. EMMI plans to apply for authorization by the second quarter of next year.
EMMI reached this conclusion after testing the reformed methodology between May and August this year.
It may well be true that Euribor passes the BMR test, although even EMMI seems to express some doubt.