March 18, 2018, 10:08 am
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New reference rate

FRANKFURT- The European Central Bank will develop a new overnight reference interest rate by 2020, it said on Thursday, potentially creating a new benchmark after industry players failed to revamp existing facilities hit by fraud and dwindling liquidity.

Benchmarks such as the Euro Interbank Offered Rate (Euribor) and Euro Overnight Index Average (Eonia) are used to calibrate monetary policy, price trillions of euros worth of derivatives and, in some countries, to determine interest rates on mortgages.

But confidence in them has waned as allegations of fraud and sharply lower volumes raised the specter of distortions that could affect asset prices and thwart the transmission of the ECB’s monetary policy to the real economy.

“Both benchmarks rely on the voluntary contributions of two distinct panels of banks, the number of which has fallen sharply in recent years,” the ECB said. - Reuters
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