--Raiffeisen Bank will stop providing data to help set the euro
interbank offered rate
--The move marks the third bank departure in four business days
from the Euribor rate-setting panel
--Erste Group Bank, another Austrian lender, says it is
reviewing its options as well
(Adds more details throughout.)
By Nick Cawley
The credibility of one of Europe's benchmark interest rates is
fraying, as an increasing number of banks abandons the panel that
sets it.
In the past four business days, three European banks have said
they will stop providing data to help set the euro interbank
offered rate, or Euribor, which serves as the basis for interest
rates of trillions of euros worth of loans and other financial
contracts. The latest on Wednesday was Austria's Raiffeisen Bank
International AG (RBI.VI, RAIFY). Another Austrian lender, Erste
Group Bank AG (EBS.VI, EBKDY), said it is reviewing its
options.
Like its more-prominent cousin Libor--the London interbank
offered rate--Euribor already is reeling from exposures about the
attempts of contributing banks to rig them. Barclays PLC (BARC.LN,
BCS) and UBS AG (UBSN.VX, UBS) admitted last year that employees
tried to manipulate the rate. The European Union is nearing
completion of an investigation into potential collusive activity by
banks in the setting of Euribor.
"I am very concerned with the situation, absolutely, this is a
serious situation," said Cedric Quemener, director of Euribor-EBF,
after Raiffeisen Bank became latest bank to give up its
Euribor-setting role.
"Euribor needs to be reformed and quickly--banks leaving set a
bad example for other contributing banks," Mr. Quemener said in an
interview. "If we have more banks leaving, we may have no more
Euribor."
Euribor was set up by the European Banking Federation in 1999 to
establish a new interbank reference rate within what is now a
17-country currency union. In addition to serving as a benchmark
for trillions of euros in savings and loans, it is also an input
into the European Central Bank's monetary-policy decisions. Many
mortgages across Europe track this, rather than the ECB benchmark
rate.
But as the European Union investigates whether banks have
colluded to set the rate at levels to suit them, banks are peeling
away. Each denies that this is the reason for their departure,
pointing instead to shifting internal priorities and what they
describe as a shrinking in the bank-to-bank lending market.
Erste Group Bank said Tuesday it is also reviewing its options
for its membership, pending audits by Austrian regulators. Last
Friday, Bayerische Landesbank and Rabobank both pulled out. The
latest departures leave 39 banks on the panel, from a peak of 44 in
2012. Citigroup Inc. (C) and Germany's DekaBank Group withdrew from
the Euribor panel in 2012.
Mr. Quemener said banks "normally" have to give around 10 days'
notice before they stop quoting rates. "As of this moment there are
no other banks looking to leave the Euribor panel," he said.
The departures chip away at one of Euribor's supposed strengths:
the number of banks in its contributing panel, which helps to guard
against the possibility of rate manipulation. Libor, by contrast,
is based on submissions from a smaller group of 18 banks.
"It's the trend and the speed of these departures [from Euribor]
that's the concern," noted Peter Osler, head of interest-rate
strategy at brokerage Marex Spectron, adding that if banks continue
to leave, Euribor "will be seen as less representative."
Forcing banks to post Euribor rates would be a first; right now,
banks voluntarily submit levels at which they believe a theoretical
"prime bank" could borrow in various currencies and at various
maturities. That is different to the Libor methodology, as banks on
that panel post rates at which they think they can borrow, rather
than rates for a theoretical bank.
Regardless of whether banks help to shape the Euribor rate, all
are heavily exposed to it. Raiffeisen's parent bank, Raiffeisen
Zentralbank Oesterreich, for example, is one of the biggest
mortgage lenders in Austria, where home loan rates are often tied
to Euribor.
"Lending remains naturally a core business for us," a
spokeswoman for Raiffeisen said Tuesday. "Only interbank business
is declining," she added.
Erste Group Bank, meanwhile, said it is considering its position
on the panel. It plans to make a decision after an audit by local
Austrian regulators as a consequence of the rate-setting scandal is
complete and to also weigh expectations of European regulators and
the EU Commission in its decision.
A collapse of confidence across the euro zone, both in the
creditworthiness of banks and of the states that are home to them,
has decimated activity in the interbank market, where banks borrow
and lend large volumes of short-term funds to each other on margins
as thin as one or two hundredths of a percentage point. The ECB's
latest survey of the euro-zone's money market said aggregate
turnover in the unsecured lending market, which Euribor tracks, was
down 36% on the year in the second quarter of 2012. Much of what
remains is concentrated in very short-term contracts of up to one
month.
--Nicole Lundeen and Tommy Stubbington contributed to this
article.
Write to Nick Cawley at nick.cawley@dowjones.com