Table of Contents
- What Is the Euro Interbank Offered Rate (Euribor)?
- Key Takeaways
- Understanding the Euro Interbank Offered Rate (Euribor)
- Who Contributes to the Euribor Rate?
- Euribor vs. €STR
- What Is an Interbank Lending Rate?
- How Many Euribor Interest Rates Are There?
- What Was LIBOR?
- Is the Euro Overnight Index Average Still Used?
- The Bottom Line
What Is the Euro Interbank Offered Rate (Euribor)?
Let me explain what Euribor is directly: it's a reference rate built from the average interest rates that eurozone banks use when offering unsecured short-term loans to each other in the interbank market. The loan maturities for calculating Euribor typically range from one week up to one year. Essentially, Euribor is the benchmark rate banks rely on to lend or borrow excess reserves from one another for periods no longer than 12 months. These loans are often set up as repurchase agreements, or repos, which help banks keep their liquidity in check and ensure that any extra cash earns interest instead of just sitting there unused.
Key Takeaways
You should know that Euribor is an overnight interbank rate made up of average interest rates from a panel of large European banks lending to each other in euros. It comes with various maturities, each having its own specific interest rate. The rate is calculated by a benchmark administrator known as Global Rate Set Systems Ltd., and it's offered through the European Money Markets Institute (EMMI).
Understanding the Euro Interbank Offered Rate (Euribor)
When I break it down, Euribor consists of five money market rates tied to different maturities: one-week, one-month, three-month, six-month, and 12-month rates. These get updated every day and show the average interest rate eurozone banks charge each other for uncollateralized loans.
These Euribor rates serve as a crucial benchmark for all sorts of euro-denominated financial products, from mortgages and savings accounts to car loans and various derivative securities. In the eurozone, Euribor's function is much like SOFR, which took over from LIBOR in 2023 in places like Britain and the United States.
Who Contributes to the Euribor Rate?
There are 19 panel banks that provide the data for Euribor. These are the institutions handling the biggest volumes of eurozone money market transactions. As of August 2024, you'll find them listed from countries across Europe, including Austria's Raiffeisen Bank International AG, Belgium's Belfius, the UK's Barclays, several from France like BNP Paribas, Crédit Agricole s.a., HSBC Continental Europe, Natixis, and Société Générale, Germany's Deutsche Bank and DZ Bank, Italy's Intesa Sanpaolo and UniCredit, Luxembourg's Banque et Caisse d'Épargne de l'État, the Netherlands' ING Bank, Portugal's Caixa Geral De Depósitos, and Spain's Banco Bilbao Vizcaya Argentaria, Banco Santander, CECABANK, and CaixaBank.
Euribor vs. €STR
Both Euribor and the Euro Short-Term Rate (€STR) are euro-based interest rates, but they differ in key ways. Euribor shows the rate at which European banks borrow euros from each other. In contrast, €STR is a backward-looking rate drawn from overnight borrowing data of European banks at actual market rates.
Euribor is forward-looking with five maturities from one week to 12 months, while €STR is seen as a risk-free rate since it avoids significant term risk or bank credit risk.
What Is an Interbank Lending Rate?
An interbank lending rate is simply the interest rate banks in a country or economic region use to lend money to each other on a short-term basis. Banks do this to maintain liquidity and meet reserve requirements, which supports the overall health of the economic system. These rates can influence other interest rates across the nation or region.
How Many Euribor Interest Rates Are There?
Euribor provides rates in five different maturities: one week, one month, three months, six months, and 12 months.
What Was LIBOR?
LIBOR stood for the London Interbank Offered Rate, which was a benchmark for short-term loans between global banks. It was the go-to rate for interbank lending worldwide until it got phased out in 2023, replaced by the Secured Overnight Financing Rate (SOFR).
Is the Euro Overnight Index Average Still Used?
The Euro Overnight Index Average (EONIA) was the average rate for overnight euro lending between European banks. It was discontinued in 2022 and replaced by the Euro Short-Term Rate (€STR).
The Bottom Line
To wrap this up, the Euro Interbank Offered Rate (Euribor) is a benchmark that indicates the average short-term lending rates among eurozone banks. It includes five rates with maturities from one week to one year.
Euribor affects various financial products like mortgages and savings accounts. It's based on inputs from 19 key European banks, reflecting the eurozone's liquidity and financial state.
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