Euro Interbank Offered Rate (EURIBOR)

The Euro Interbank Offered Rate (EURIBOR) is a benchmark interest rate that is used to determine short-term interbank lending rates within the Eurozone. It represents the average interest rate at which Eurozone banks are willing to lend unsecured funds to each other.

EURIBOR is calculated and published daily by the European Money Markets Institute (EMMI), which is responsible for setting the methodology and overseeing the rate-setting process. The rate is based on submissions from a panel of banks, known as the EURIBOR Contributor Panel, which consists of major banks operating in the Eurozone.

The panel banks submit their estimates of the interest rates at which they believe they could borrow funds from other banks in the interbank market. These submissions are collected and the highest and lowest 15% are excluded, while the remaining rates are averaged to determine the EURIBOR rate for each maturity.

EURIBOR is published for multiple tenors, ranging from overnight to 12 months. The most commonly referenced tenors are 1-week, 1-month, 3-month, 6-month, and 12-month EURIBOR rates. Each tenor represents the average interest rate at which banks are willing to lend to each other for the specified period.

EURIBOR serves as a reference rate for a wide range of financial products and contracts, including variable-rate mortgages, corporate loans, derivatives, and structured products. It provides a transparent and standardized benchmark for pricing and valuing these instruments.

It is important to note that EURIBOR is not set by any central authority or regulatory body, but rather by the consensus of the panel banks. This can make it susceptible to manipulation, as was seen in the past with the LIBOR scandal. However, efforts have been made to strengthen the governance and oversight of EURIBOR to ensure its integrity.

Overall, EURIBOR plays a crucial role in the Eurozone financial system by providing a reliable benchmark for short-term interbank lending rates. Its transparency and widespread usage make it an important tool for pricing and managing interest rate risk in various financial transactions.