Euribor’s non-bank inclusion could distort benchmark

Author: Tom Young | Published: 23 Nov 2015

The European Money Markets Institute’s (EMMI) changes to its Euribor benchmark has acknowledged the rise of non-bank funding by including corporates in its new methodology. But the revised benchmark could create distortions.

The paper, published on October 30, is intended to change the definition of Euribor to reflect more clearly that it is based on cost of funding, as traditional bank lending declines. It is part of the wider reform of both the Euribor, Europe’s daily reference rate, and Libor, London’s interbank rate following recent rigging controversies.

The EMMI has acknowledged the decline in traditional bank-to-bank lending following the financial crisis, and proposes including funding received by banks from non-bank sources. The expanded list includes insurance companies, central banks, pension...