Euribor, or the Euro Interbank Offer Rate, is a reference rate constructed from the average interest rate at which eurozone banks offer unsecured short-term lending on the interbank market. The maturities on loans used to calculate Euribor typically range from one week to one year.
This benchmark rate facilitates the lending or borrowing of excess reserves among banks over short periods, from one week to 12 months. These short-term loans often take the form of repurchase agreements (repos) and play a crucial role in maintaining bank liquidity and ensuring that excess cash generates an interest return rather than remaining idle.
Key Takeaways
- Interbank Rate: Euribor is an overnight interbank rate comprised of the average interest rates from a panel of large European banks that lend to one another in euros.
- Varying Maturities: It has various maturities, each with its own interest rate.
- Calculation and Offer: Euribor is calculated by Global Rate Set Systems Ltd. and offered by the European Money Markets Institute (EMMI).
Excelling in Financial Understanding: The Euro Interbank Offer Rate (Euribor)
Euribor actually refers to a set of five money market rates corresponding to different maturities: the one-week, one-month, three-month, six-month, and twelve-month rates. These rates, updated daily, represent the average interest rate that eurozone banks charge each other for uncollateralized loans.
Euribor rates are pivotal benchmarks for a range of euro-denominated financial products, including mortgages, savings accounts, car loans, and various derivatives securities. Euribor’s significance in the eurozone is analogous to that of LIBOR in Britain and the United States.
Champions of Euribor: The Panel Banks
There are 19 panel banks that contribute to Euribor. These financial institutions handle the largest volume of eurozone money market transactions. As of May 2023, these panel banks include:
- Raiffeisen Bank International AG (Austria)
- Belfius (Belgium)
- Barclays (Britain)
- BNP Paribas (France)
- Crédit Agricole s.a. (France)
- HSBC France (France)
- Natixis / BPCE (France)
- Société Générale (France)
- Deutsche Bank (Germany)
- DZ Bank (Germany)
- Intesa Sanpaolo (Italy)
- UniCredit (Italy)
- Banque et Caisse d’Épargne de l’État (Luxembourg)
- ING Bank (Netherlands)
- Caixa Geral De Depósitos (Portugal)
- Banco Bilbao Vizcaya Argentaria (Spain)
- Banco Santander (Spain)
- CECABANK (Spain)
- CaixaBank (Spain)
Decoding the Differences: Euribor vs. Eonia
Eonia, or the Euro Overnight Index Average, is another daily reference rate representing the weighted average of unsecured overnight interbank lending in the European Union and the European Free Trade Association (EFTA). It is calculated by the European Central Bank (ECB) based on loans made by 28 panel banks.
Eonia parallels Euribor as a rate used in European interbank lending, with both benchmarks offered by the European Money Markets Institute (EMMI). The notable differences between Eonia and Euribor lie in the maturities of the loans they are based on. Eonia is an overnight rate, whereas Euribor consists of eight different rates based on loans with maturities from one week to 12 months.
Additionally, the panel banks contributing to the rates differ: only 19 banks contribute to Euribor compared to 28 for Eonia. Moreover, Euribor is calculated by Global Rate Set Systems Ltd., not the ECB.
Related Terms: LIBOR, money market, reference rate, collateral, European Central Bank.
References
- Euribor. “Euribor”.
- Euribor. “What is Euribor”.
- The European Money Markets Institute. “Panel Banks”.
- Euribor. “Euribor Panelbanks”.
