Euribor faces threat of more departures, bucking ECB support

FRANKFURT/LONDON Wed Dec 12, 2012 11:45am EST

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FRANKFURT/LONDON Dec 12 (Reuters) - Two more German banks may quit or scale down their involvement in money market rate Euribor, sources close to the lenders said, raising new questions about its future and bucking the ECB's recent call for more to join up.

Euribor and its larger counterpart Libor are Europe's key gauges of how much banks pay to borrow from peers and underpin swathes of financial products from Spanish mortgages to derivatives contracts in London.

Like Libor, there is an official investigation into whether banks manipulated Euribor rates for their advantage.

Two banks, including Citigroup, one of the world's biggest, have already quit the benchmark in the wake of the troubles and sources at two German public-sector "Landesbanks" told Reuters their banks were considering following suit.

"If, in the future, we would have to reserve capital for this, we will quit," a board member of one of the banks said. "An evaluation is ongoing into whether we need to stay in the Euribor panel," said a source at the second bank.

Another German bank, DekaBank, quit the Euribor panel two weeks ago having been on it for just three months, a decision also said to be over cost.

Over 40 banks still contribute to the benchmark, but the Euribor-EBF group running it warned recently that more could leave following the recent bad publicity.

The Libor scandal has already toppled the leadership of Britain's Barclays and has left other banks bracing for fallout, including the possibility of criminal charges against bankers and executives.

Cédric Quéméner director of Euribor-EBF said he wasn't aware more banks planned to quit. "There's no sign of any potential departures," he said, adding that improvements being made to Euribor would hopefully convince banks to stay on board.

The European Central Bank, meanwhile, has encouraged more banks to sign up to Euribor as part of a broader overhaul of money market benchmarks.

The first results of the European Commission's review will be published early next year and the ECB has called for Euribor's organisers to use the prices of real money market trades rather than banks' estimates of what they pay.

The future of Euribor and Libor was discussed further at a meeting on Monday of the central bank's Money Market Contact Group, a group of around 20 top money market traders from Europe's big banks.

Much of the discussion centred on the various proposals that have been put forward as part of the Commission's review although two people who attended the meeting said the ECB also repeated its concerns about banks quitting Euribor. (Additional reporting by Andreas Kröner and Jonathan Gould in Frankfurt; editing by Ron Askew)

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