REFILE-Euribor rate-setting group says banks may quit

Wed Dec 5, 2012 2:30pm EST

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(Refiles to add dropped words "on behalf of the British Bankers Association (BBA)" in final paragraph)

* Probe into Euribor, Libor rate-setting continues

* Euribor-EBF says banks worried about staying on rate-setting panels

* Euribor-EBF chief says banks quitting sends wrong signal

By John O'Donnell

BRUSSELS, Dec 5 (Reuters) - The group running lending rate benchmark Euribor warned on Wednesday that nervous banks could quit the panels that contribute to setting such rates, undermining the systems used to fix the price of lending.

Euribor, the euro interbank offered rate, and Libor, are the key gauges of how much banks pay to borrow from peers and underpin swathes of financial products from Spanish mortgages to derivatives contracts sealed in London. Both are set using interbank borrowing rates submitted by banks on the panels.

The statement signalled a heightened sense of alarm over the future of such benchmarks as authorities continued to investigate possible manipulation of the London interbank offered rate (Libor) and its smaller euro counterpart, Euribor.

"Banks' responsibility in setting benchmarks is part of their core role as market participants," said Guido Ravoet, Chief Executive of Euribor-EBF, an arm of the European Banking Federation that runs Euribor.

"Withdrawing from the benchmark setting process would send the wrong signal," he said in a joint statement with ACI The Financial Markets Association, a body representing financial market professionals.

Citigroup, one of the world's biggest banks and a major player in European money markets, left the Euribor panel in September, citing "low interbank transaction volumes in the euro zone". More than 40 banks remain on the panel.

Citigroup had said last year it received information requests from investigators looking into interbank offered rates.

In the statement the two groups said some banks had expressed reservations about participating in benchmark setting and warned that any withdrawal had the potential to undermine confidence in the system.

The plea comes as a collapse in interbank lending and the threat of a regulatory clampdown are putting pressure on such benchmarks to change the way rates are determined.

In September the EU's executive Commission opened talks with the industry about possible curbs on such benchmarks that could lay down stricter rules on how the rate for Euribor is established, as well as enforcing new public supervision.

It is also considering rules to change the way such benchmarks are calculated, as well as imposing tougher legal penalties on those who try to manipulate them.

Adding to this pressure, Joaquin Almunia, the European Union's anti-trust chief, is investigating Euribor, Libor and other benchmarks for possible breaches of the EU cartel rules.

Last month sources familiar with the matter said that a group representing some of the world's most powerful banks approached the European Central Bank to seek backing for a new way to calculate the cost of funding after the Libor rigging scandal.

Reuters parent company Thomson Reuters Corp collects information from banks and uses it to calculate Libor rates on behalf of the British Bankers Association (BBA). It also computes Euribor.

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