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New Euro Interbank Offered Rate: ‘Euribor Plus’

31/10/2014 – Cinco Dias

The scandals about manipulation of the Euribor which involved such large banks as Société Générale, Deutsche Bank or RBS, made the European Commission work on creation of a new rate that would replace the current one and become the reference in the future.

Named ‘the Euribor Plus’, the new Euro Interbank Offered Rate will be designed in cooperation with four Spanish entites: BBVA, Santander, CaixaBank and CecaBank.

Euribor provides the basis for the price and interest rates of all kinds of financial products and mostly mortgages. In Spain, more than 80% of loans for home purchase employs the rate as a reference.

The index is an average of reference rates sent by 25 eurozone banks on daily basis. This means that the result is not the real rate applied on loans but banks’ expectations. Therefore, to avoid possible fiddling with the rate, the Euribor Plus will be calculated using the true transactions’ rates. ‘This will make the subsitute more transparent, efficient and correspondent to actual situation’, said Jorge Lopez, analyst at XTB.

However, the stumbling block for the new index may be the fact that there are almost no operations conducted within more than a three-month term, so the sampling would be small (mortgages are tied to Euribor for 12 months).

Spain sees transactions for five day term maximum. According to the Bank of Spain data, on Monday the entities lent to each other €769 million for one day and €40 million for two to five days.

While the talks are being held, Spain’s central bank is looking closely at the four banks which contribute to the rate.

The Euribor for 12 months stands currently at its historic lows as it closed September at 0.362%, while October provisional average declined to 0.336%, making revised mortgages cheaper. If the Euribor Plus brings benefits to borrowers or, just the opposite, makes them pay more, no one will venture to play with it.

 

Original article: Cinco Días (by Miriam Calavia)

Translation: AURA REE