Friday, February 24, 2012

EURIBOR – Calculation Process and Legal Structure

Last week, I wrote about the ongoing probe into whether investment banks manipulated global lending rates such as EURIBOR, LIBOR and TIBOR. Today, I would like to expand on this discussion and present some general guidelines to understand how EURIBOR rates are set.

A. Introduction

EURIBOR stands for Euro Interbank Offered Rate. By definition, it only applies to one currency, the Euro. EURIBOR rates are calculated for 14 maturities, e.g. 1 week, 2 weeks as well as 1 to 12 months.

B. Calculation Process

The process of defining the above described EURIBOR rates is set out in the EURIBOR Code of Conduct.

The Code of Conduct first sets the conditions that financial institutions must meet to qualify as EURIBOR panel banks: They must not only be active in the Euro money markets but also handle good volumes in Euro interest rate related financial instruments. Additional criteria include a first class credit standing, high ethical standards and an excellent reputation.

As of today, the EURIBOR panel includes the following financial institutions:

EURIBOR's Steering Committee is in charge of choosing and regularly reviewing the constitution of the EURIBOR panel.

According to Article 6 of the Code of Conduct, panel banks communicate “the rates at which Euro interbank term deposits are being offered within the EMU zone by one prime bank to another at 11.00 a.m. Brussels time”. In addition, panel banks must also submit their aggregate loan volume and the weighted average interest rate applied.

EURIBOR rates are trimmed averages of the submitted data and calculated by Thomson Reuters in a two step process:

  • First, the highest and lowest 15% of all the quotes collected are eliminated.
  • Second, the remaining rates are averaged and rounded to three decimal places.

Finally, Thomson Reuters not only publishes the calculated EURIBOR rates. In addition, it also makes all underlying quotes available to the general public.

C. Parties and Institutions


EURIBOR-EBF is an international non-profit making association under Belgian law. It was founded in 1999.

Its members are national banking associations of the European Union who participate in the European Banking Federation. A member can be excluded from the association if he violates the association's legal framework.

According to its statutes, EURIBOR-EBF is in charge of

  • developing and supporting EURIBOR;
  • providing information about EURIBOR to its members and other stakeholders;
  • enhance the integration of the European financial market.

EURIBOR-EBF's internal legal structure consists of the General Assembly, the Board of Directors, the President of the Board of Directors, the association's Secretary General, the EURIBOR Steering Committee, and the STEP Market Committee.

1. General Assembly

The General Assembly is the central organ that is responsible for attaining the association's purpose; it is namely in charge of changing the statutes, appointing directors, and defining the strategy. The General Assembly consists of the association's full members and each of them has one voting right.

2. Board of Directors / President of the Board of Directors

The Board of Directors is the association's executive body and consists of at least 3 members who are appointed for 2 years. It elects its President for a duration of 2 years. Both the President and the Secretary General are the spokespersons of EURIBOR-EBF.

3. EURIBOR Steering Committee

The EURIBOR Steering Committee has been created jointly by EURIBOR-EBF and EURIBOR ACI, both associations under Belgian Law. It controls, supervises, and reprimands the application of the EURIBOR Code of Conduct. Its members are 10 independent and experienced market experts whose names are published on the EURIBOR dedicated website.

4. STEP Market Committee

Finally, the STEP Market Committee monitors market developments and establishes and reviews market standards. A specific code of conduct applies to its operations. It consists of 10 voting members of the association. The committee is assisted by a STEP Secretariat.

II. Thomson Reuters

Thomson Reuters calculates and publishes EURIBOR rates.

D. Comment

In my last week's comment on the LIBOR rate fixing, I criticized the unclear legal structure that surrounds the LIBOR fixing. However, this critic does not apply to the EURIBOR fixing process: Not only does EURIBOR-EBF dispose a clearly defined legal status as it is an association under Belgian Law. In addition, the relevant constitutional documents of this association are published on the below mentioned website leaving no doubt as to how EURIBOR-EBF's internal structure looks like and how it might be modified, if required.


  • EURIBOR-EBF statutes and other constitutional documents