Euro Interbank Offer Rate (Euribor)

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  • Post last modified:December 15, 2023
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The **Euro Interbank Offer Rate (Euribor)** is a reference interest rate that represents the average interest rates at which Eurozone banks offer unsecured funds to each other in the interbank market. Euribor is published daily for various maturities, ranging from overnight to one year, and it serves as a benchmark for a wide range of financial instruments and contracts.

### Key Points about Euribor:

1. **Calculation:**
– Euribor is calculated based on the submissions of a panel of major banks in the Eurozone. These banks provide daily estimates of the interest rates at which they believe they could borrow funds from other banks in the interbank market.

2. **Maturities:**
– Euribor rates are quoted for various maturities, including overnight, one week, one month, three months, six months, and one year. Each maturity represents the period for which the borrowing would occur.

3. **Contributing Banks:**
– A panel of major banks contributes to the calculation of Euribor. The panel is comprised of banks with significant activity in the Eurozone money markets.

4. **Fixing:**
– Euribor rates are published on a daily basis and are commonly referred to as “fixings.” The fixing represents the average rate calculated from the submitted rates of the contributing banks.

5. **Use as Benchmark:**
– Euribor is widely used as a benchmark for various financial products and contracts. It is a reference rate for adjustable-rate mortgages, business loans, derivatives, and other financial instruments.

6. **Euribor-Linked Products:**
– Many financial products, especially in the Eurozone, are linked to Euribor. For example, a variable-rate mortgage might be specified as “Euribor + X%” where X is a fixed margin set by the lender.

7. **Euribor vs. EONIA:**
– Euribor is often contrasted with the Euro Overnight Index Average (EONIA). While Euribor represents longer-term interbank lending rates, EONIA is an overnight rate reflecting the average interest rates at which banks lend to each other in the overnight market.

8. **Regulation:**
– Euribor, like other benchmark rates, has faced increased scrutiny and regulatory changes to enhance transparency and integrity. The European Benchmark Regulation (BMR) aims to ensure the accuracy and reliability of benchmarks like Euribor.

9. **Transition from EONIA to €STR:**
– In 2019, the Eurozone introduced the Euro Short-Term Rate (€STR) as a new reference rate. €STR is designed to replace EONIA, and it reflects the wholesale euro unsecured overnight borrowing costs of euro area banks. However, Euribor continues to be a widely used benchmark.

Euribor plays a crucial role in the functioning of the Eurozone money markets and has a significant impact on the cost of borrowing for financial institutions and businesses across the Eurozone. Its importance as a benchmark makes it an integral part of the financial landscape in the Eurozone.