Euro Interbank Offered Rate (Euribor): Definition, Applications, and Comparison with €STR

Adam Hayes, Ph.D., CFA, brings over 15 years of Wall Street experience as a derivatives trader and is a recognized expert in economics and behavioral finance. Holding a master’s degree in economics from The New School for Social Research and a Ph.D. in sociology from the University of Wisconsin-Madison, Adam also possesses CFA certification and FINRA Series 7, 55 & 63 licenses. He currently focuses on economic sociology and the social studies of finance at Hebrew University in Jerusalem.

What Is the Euro Interbank Offered Rate (Euribor)?

The Euro Interbank Offered Rate, commonly known as Euribor, represents the average interest rate at which major banks within the eurozone lend unsecured funds to each other on the interbank market. It covers short-term loan periods, typically ranging from one week up to one year. Serving as a critical benchmark, Euribor facilitates liquidity management among banks by enabling them to lend excess reserves, often through repurchase agreements, ensuring idle cash generates returns.

Key Highlights

• Euribor reflects overnight interbank lending rates averaged from a panel of leading European banks transacting in euros.
• It encompasses multiple maturities, each with distinct interest rates.
• The rate is administered by Global Rate Set Systems Ltd. and published by the European Money Markets Institute (EMMI).

Understanding Euribor’s Structure

Euribor consists of five distinct money market rates aligned with maturities of one week, one month, three months, six months, and twelve months. Updated daily, these rates indicate the average cost banks incur when borrowing unsecured funds from one another within the eurozone.

This benchmark underpins a wide variety of euro-denominated financial instruments, including mortgages, savings accounts, auto loans, and derivative products. Euribor plays a role similar to the Secured Overnight Financing Rate (SOFR) in the US and UK markets, especially after LIBOR's replacement in 2023.

Contributors to Euribor

Euribor rates are calculated based on submissions from 19 panel banks, which are the largest participants in the eurozone money markets as of June 2024. These institutions provide the data reflecting current lending rates among themselves.

Euribor vs. Euro Short-Term Rate (€STR)

While both Euribor and €STR are euro-denominated interest rates, they differ fundamentally. Euribor is a forward-looking rate representing the expected cost of borrowing over various maturities, whereas €STR is a backward-looking overnight rate based on actual transactions of unsecured overnight borrowing among European banks.

€STR is considered a nearly risk-free rate as it excludes term and credit risk, unlike Euribor, which incorporates such risks due to its forward-looking nature and longer maturities.

What Is an Interbank Lending Rate?

An interbank lending rate is the interest rate at which banks lend funds to each other on a short-term basis to maintain liquidity and fulfill regulatory reserve requirements. These rates influence broader financial conditions and other interest rates within an economy.

How Many Euribor Rates Exist?

Euribor is published for five different maturities: one week, one month, three months, six months, and twelve months, each reflecting different lending durations.

What Was LIBOR?

The London Interbank Offered Rate (LIBOR) was the global benchmark for short-term interest rates on loans between banks. It was phased out in 2023 and succeeded by alternative benchmarks such as SOFR in the US.

Is the Euro Overnight Index Average (EONIA) Still in Use?

EONIA, which measured the average overnight lending rate between European banks, was discontinued in 2022 and replaced by the Euro Short-Term Rate (€STR).

Conclusion

The Euro Interbank Offered Rate (Euribor) remains a vital benchmark reflecting the average short-term unsecured lending rates among eurozone banks. With multiple maturities ranging from one week to one year, it influences numerous financial products and reflects the eurozone’s liquidity and banking health. Euribor’s data is contributed by 19 major European banks, ensuring it accurately represents current market conditions.

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