29 June 2022
Outcome of the second annual review of the Hybrid Methodology for EURIBOR®
The European Money Markets Institute (EMMI) today communicated the outcome of the second annual review of the Hybrid Methodology for EURIBOR®. The review aimed at confirming that the benchmark remains robust, resilient, and representative of its underlying market on the one hand, and at identifying any potential for further beneficial recalibrations, on the other hand.
Key facts:
The analysis run by the European Money Markets Institute in 2021 suggests that four non-material adjustments would improve the Hybrid Methodology for EURIBOR®, namely:
- Enlarging the 12-months maturity window of Level 1 by 15 days
- Using the previous 5-days banks’ contributions to calculate the SAF used to determine Level 2.1
- Using the previous banks’ contributions to calculate the adjustment used to determine Level 2.2
- Qualifying a Level 2.2 rate as eligible if the original volume of the trade is higher than EUR 10 million
In close collaboration with the Panel Banks, these favourable amendments to the Hybrid Methodology for EURIBOR® will be implemented on 3 October 2022.
The regulation of the European Union on financial benchmarks (BMR) requires benchmarks administrators to periodically review their benchmarks’ methodologies. The European Money Markets Institute performed the second annual review of the Hybrid Methodology for EURIBOR® with a twofold objective: confirming that the benchmark remains robust, resilient, and representative of its underlying market on the one hand, and identifying any potential for further beneficial recalibrations, on the other hand.
The European Money Markets Institute considered and analysed a number of scenarios, based on the data gathered from the Panel Banks in the period May-October 2021. These scenarios entailed changes in the volume threshold for individual transactions, the inclusion of the counterparty sector with non-financial corporates and, finally, amendments to certain maturity buckets.
Based on the outcome of the review, four relevant adjustments have been identified and will be implemented as from 3 October 2022. “Just like in the case of the first annual review, this second one doesn't mean a new Hybrid Methodology at all as only four specific parameters will be fine-tuned. These changes should not increase resources for panel banks, since they are only mild adjustments to eligibility criteria and formulaic approach of Level 1 and Level 2, which are calculated internally by EMMI," said Jean-Louis Schirmann, CEO of the European Money Markets Institute.
The combination of these four methodological ‘upgrades’ will serve the representativeness of the benchmark, without inducing unwanted volatility or inflicting unnecessary material changes. They will have a positive effect on EURIBOR® by improving its robustness and making it even more resistant to undue fixing influence. They will also induce an increase in the share of Level 1 and Level 2 contributions, a decrease in the share of Level 3 submissions and, lastly, an enhancement of the benchmark’s responsiveness to market events.
More information on the Hybrid Methodology for EURIBOR®:
https://www.emmi-benchmarks.eu/benchmarks/euribor/methodology/
You can download the press release here.