Last week it became known that the European Union fined eight large financial institutions a record 1.7 billion Euros for manipulating benchmark interest rates such as the Japanese yen Tibor and the Euribor. Germany’s Deutsche Bank had to pay a total of 725 million Euros and Societe Generale from France was fined 446 million Euros. Other banks involved were UBS from Switzerland, the Royal Bank of Scotland, JP Morgan and Citigroup.
According to investigations, the cartel was active between 2005 and 2008. Traders from these banks have rigged the rates in order to make a profit.
But what exactly did these banks manipulate in their interest? What is the Euribor?
Euribor stands for “Euro Interbank Offered Rate” it is actually the average interest rate the so-called bank panel use to lend money to each other. All major banks with a top credit rating in the Eurozone contribute to these rates. The LIBOR is the equivalent for the London money market with a slightly different calculation.
The highest and the lowest 15 % of contributions are not taken into consideration to compute these rates. The Euribor rates are fixed and published at 11.00 CET. In total, there are eight different rates with different maturities ranging from one week to one year. Before November 2013, there were a total of 15 maturities.
Since the Euribor rates provide the basis for interest rates of all kinds of financial products such as interest rate swaps, interest rate futures, saving accounts or mortgages- they are considered to be the most important reference rates in the European money market.
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