The ESMA-EBA published their report on the administration and management of Euribor on Friday. Among the outline of the now familiar shortcomings of such benchmarks were tables demonstrating basic operational failures, e.g. fat finger errors by panel banks… Read more
ESMA (European Securities and Markets Authority) and the EBA (European Banking Authority) got together to make recommendations to the EEBF (Euribor-European Banking Federation) about Euribor. All the acronyms that start with E were there. It was quite the party, we’re told. Like, the EFSF got sooo drunk and nearly bailed out the Spanish government! The ESM was seriously not amused.
Anyway… Read more
Libor has, in many ways, already been disowned by the industry. But now the discussion of its inadequacies has entered the mainstream, thanks to the fines recently levied on Barclays for manipulating the rate, and its drawing unwelcome attention to the fact that it’s still used to determine payments on hundreds of trillions of financial products.
Some of the holders of said products are not happy, and have filed class action suits to show it.
Clap your hands. Read more
It’s all very well bashing Bob and calling for bankers’ heads.
But we shouldn’t overlook another exceedingly important point about the Libor affair, as picked up by Claire Jones over on the FT’s Money Supply blog. Read more
The statements of CFTC and Department of Justice in the US, and FSA in the UK, are out concerning Barclays’ $200m, $160m, and £59.5m fines respectively for “attempted manipulation of and false reporting of LIBOR and Euribor Benchmark rates”. The FSA fine is the largest the agency has ever imposed.
From the CFTC statement: Read more
An excellent point from Don Smith at ICAP on Tuesday.
If you’ve looked at the eurozone FRA-OIS spread recently and wondered why it is so weirdly stable given that Grexit fears are hitting new extremes, there may be a very clear and technical explanation. One that could, as it turns out, be masking weightier problems in the money markets. Read more
More than a dozen traders and brokers in London and Asia have been fired, suspended or put on leave by their employers as a multinational probe into alleged manipulation of crucial global lending rates accelerates, reports the FT. Regulators have been investigating US and European banks that help set interbank lending rates in London and Tokyo since late 2010, in an intensive profile inquiry that spans three continents and involves at least nine separate enforcement agencies. Icap, the world’s largest inter-dealer broker, has suspended one employee and put two more on administrative leave in the past six weeks. Icap declined to comment beyond noting that it was “co-operating fully” with authorities and had disclosed the official requests for information late last year. The story cites people familiar with the probe as saying traders have also been suspended, fired or placed on leave in recent months at Deutsche Bank, JPMorgan Chase, Royal Bank of Scotland andCitigroup. All four banks declined to comment. Regulators sought information from the three interdealer brokers that dominate the rates market – Icap, Tullett Prebon and RP Martin, looking at information-sharing among brokers, hedge funds and banks, the sources said. An RP Martin spokesman said the firm was not under investigation and declined to comment on suspensions. A Tullett Prebon spokesman said the firm had not suspended any employees. Separately, the FT reports the US authorities are modelling their investigation on an earlier prosecution of three energy companies for violations of the Commodity Exchange Act, which resulted in criminal settlements and prison terms of up to 14 years. Read more
The ECB’s Mario Draghi gave a speech to the European Parliament on Thursday, making some of the following key points:
RTRS – DRAGHI-DOWNSIDE RISKS TO ECONOMIC OUTLOOK HAVE INCREASED
RTRS – DRAGHI-ECB TEMPORARY MEASURES ONLY LIMITED
RTRS – DRAGHI-ECB AWARE OF CONTINUING DIFFICULTIES ON BANKS
RTRS – DRAGHI-AWARE OF MATURITY MISMATCHES, STRESSES ON BANK FUNDING
RTRS – DRAGHI-CHANGES IN STRAINED COUNTRIES HAVE NOT YET HAD IMPACT ON FRAGILITY OF FINANCIAL MARKETS
RTRS – DRAGHI-CREDIBLE SIGNAL NEEDED TO GIVE ULTIMATE ASSURANCE OVER THE SHORT TERM Read more
[Updated to clarify some points.]
Presenting the three-month EURUSD currency basis swap, currently trading at approx -137 bps: Read more
Several “major” European banks were raided by European Commission officials on Tuesday over interbank lending rates, the WSJ says, citing people familiar with the matter. The Euribor probe is an offshoot of a broader investigation under way for more than a year by prosecutors and regulators in the US, Europe and Japan into whether banks colluded to manipulate the London interbank offered rate. The says a list of the companies was not available, but the unnamed sources said they included a large French bank and a large German bank, and the coordinated raids took place in London and other European cities. Cedric Quemener, the manager of Euribor EBF, the group in Brussels that manages the Euribor interest rate, said he isn’t worried about the investigation because Euribor is based on information collected from more than 40 banks and was therefore harder to manipulate than Libor, which is set by 15 banks. Read more
First, a chart from ICMA’s December 2010 European repo survey:
The equity market panicked on Wednesday, particularly in French banks. So — maybe time for a quick credit perspective.
First up — chart of movements in the Markit senior financials index during Wednesday at the height of the equity sell-off. It’s courtesy of credit analyst Lisa Pollack: Read more
In which ‘strong vigilance‘ = ‘token gesture’.
Three charts on the European Central Bank and the euro periphery, from Credit Suisse’s global equities team on Monday: Read more
That’s three-month Euribor — the Euro Interbank Offered Rate and an an interest rate for term loans between banks. It rose to 1.027 on Thursday, ahead of that European Central Bank meeting, and has stuck at the same level on Friday.
Euribor is clearly not completely under the control of the ECB, but it does tend to be a mix of rate expectations and appetite for intrabank lending. Its rise (it reached that 2010-high of about 1.050 earlier this month) has also been synonymous with pain amongst Europe’s banks and indicative of the ECB exit tightrope act. Read more
Here’s an interesting datapoint unearthed up by BNP Paribas’ emerging markets deak on Monday.
The Latvian interbank rate — Rigibor — is trading through Euribor for the first time in four years… Read more
FT Alphaville has talked about the vaporisation of unsecured lending in Europe, as well as the consequent impact on quality collateral via the rush towards collateralised lending.
But in case you didn’t believe us, here’s the news straight from the horse’s mouth via the ECB’s Euro Money Market Survey 2010: Read more
Marco Bianchetti, a senior quantitative analyst in market risk management at Intesa Sanpaolo Bank, has a very intriguing piece out in this month’s Risk Magazine.
It’s highly technical, but the main point is that swap pricing has changed significantly since the beginning of the crisis, largely because the industry has found itself having to adopt a “double curve-single currency” framework. Read more
Not our words, but those of Richard Comotto of the European Repo Council.
In case readers are not familiar with Mr Comotto, he’s the author of the ICMA’s semi-annual survey of the European repo market — probably the best (if not the only) overview of the repurchase market in Europe. Read more
Did stress-testing the sovereign exposures of European banks help soothe the market, asks FT Alphaville? On Monday July 26, shortly after results of the tests were published, the analysts at RBS came up with seven indicators that might suggest whether the exercise had ‘succeeded’ in terms of sentiment. They’ve now published an update and all but one of the indicators seems to point to success rather than failure. Read more
Short-term liquidity rates — like European top-tier commercial paper — quite literally jumped off a stress-test cliff last week, reports FT Alphaville. Which is rather a step-change given that for the first few days after test results were announced some European interbank strains looked to have persisted. Three-month Euribor, for instance, continued its steady ascent upwards for most of last week. It finally dropped to 0.896 on Friday — its first decline since April 30, according to Bloomberg. Read more
FT Alphaville noted on Wednesday how the basis between the Euribor rate (set by a panel of 42 European participating banks) and Euro Libor (as set by 16 banks in London) has been diverging on the back of the European sovereign crisis.
Of course, there was one other divergence that appeared in the European funding market post the Lehman crisis. The difference between Euribor (a survey of unsecured term lending) and Eonia (unsecured overnight lending rates). Read more
This is the divergence that’s taken place between three-month Euro Libor (as set by 16 banks in London) and Euribor (as set by 42 banks in Europe) since about June 2009:
Is this the first rumbling of an unintended consequence in Basel III?
The Basel Committee released its watered-down vision of a new era in bank regulation, complete with liquidity buffers and leverage ratios, on Monday. In particular the Committee lengthened the timeframe for implementing the Net Stable Funding Ratio (NSFR) from the start of 2013 to the beginning of 2018. Read more
So much for any interbank market relief after the stress tests.
The below just out from the European Banking Federation: Read more
Eurozone market interest rates headed higher on Tuesday, in effect tightening monetary policy in the 16-country bloc, as ECB operations drain excess liquidity from the financial system, the FT reports. The rise in borrowing costs highlighted the balancing act faced by the ECB, which holds an interest-rate setting meeting in Frankfurt on Wednesday. FT Alphaville reported on Monday that the bank’s recent liquidity draining was the equivalent of two small policy rate hikes in “normal” times, according to Citi analysts. Read more
The European Central Bank’s 12-month LTRO expired with a whimper, last week.
Lower-than-expected roll-over demand for the central bank’s new, albeit shorter-maturity, facilities meant European banks weren’t doing as badly as feared — or, at least some of them weren’t. But the reduction in ECB liquidity could mean something else for money markets; higher rates. Read more
So — the ECB’s 3-month liquidity operation saw less demand than expected on Wednesday. Approximately €132bn versus consensus expectations of some €250bn, to be exact, which left markets and the euro to rally after the announcement.
Nevertheless, as Unicredit’s Luca Cazzulani warned in his LTRO guide, there are some risks associated with too little demand for the facility — specifically demand below the €140bn mark, as has transpired. Read more