UPDATE 2-UBS departure deals Euribor fresh blow

Tue Mar 19, 2013 1:07pm EDT

* UBS departure raises fresh worries about Euribor credibility

* Move follows UBS fines for fixing, investment banking scaleback

* Banks discussing overhaul of Euribor

By Katharina Bart and Marc Jones

ZURICH/LONDON March 19 (Reuters) - UBS become the latest big name European bank to stop contributing to money market benchmark Euribor on Tuesday, dealing the credibility of the scandal-tainted lending rate a fresh blow.

UBS, which was fined $1.5 billion euros in December for manipulating bank lending rates, said it was pulling out of Euribor as of March 28 as part of plans to focus on its Swiss franc and dollar funding markets.

Euribor and its larger counterpart Libor are Europe's benchmark gauges of how much banks pay to borrow from peers, but its future has been called into question by pull-outs and an inquiry into Libor-style manipulation.

Trillions of euros worth of financial products, from home mortgages to complex financial derivatives, are priced using Euribor and a complete unravelling of the rate would cause a major headache for the banking system.

"We have decided to withdraw from the Euribor panel and to focus on our core funding markets, Swiss franc and U.S. dollar,"

a UBS spokesman said, adding the decision was linked to an October decision to shut down major parts of its investment bank.

The Swiss bank's departure follows Rabobank's in January and Citi's last year, and leaves few top name banks in the near 40-member group that provides the daily contributions to Euribor.

PRESSURE

The decision also defies recent calls from European authorities, including the European Central Bank (ECB) and the Bank of International Settlements (BIS), for banks to remain in key benchmarks.

Although they have put pressure on banks to remain in the Euribor calculations, ECB officials acknowledge that they can not force them unless it is made a legal obligation.

As banks look to protect or repair reputations, they are questioning the appeal of being involved in setting interbank rates.

The Libor scandal toppled the leadership of Barclay's last year and has generated billions in fines. With the European Commission expected to publish the findings of its investigation into Euribor later in the year, the worry is that more wrongdoings could be uncovered.

On Monday, top money market bankers met at the ECB's Frankfurt headquarters and discussed plans to base Euribor, at least partly, on transactions rather than the estimates used at present.

Euribor-EBF, the small Brussels-based group that runs the benchmark, could not be reached for comment on UBS's decision to quit.

It too has identified transaction-based rates as a key improvement and back in December voiced concerns over banks withdrawing from the lending rate.

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