Thursday, October 8, 2009


Something's rotten in the kingdom of LIBOR measuring organizations. Euro LIBOR, computed by the British Banker’s Association recently has been visibly below EURIBOR computed by the European Banking Federation. The two should be right on top of each other - both are surveys of major banks on term rates for wholesale Euro deposits. The chart below shows that recently we've had quite a spread between these.


source: Bloomberg

There are subtle differences in the calculations. LIBOR throws out the lowest and the highest quartile of the quotes, averaging out the rest. EURIBOR throws out the top and the bottom 15%. It is possible that EURIBOR includes some quotes that are quite high, which are excluded from LIBOR. It could be explained by a bank that is in need of significant Euro financing and is trying to attract wholesale deposits by quoting a higher rate.

This type of dispersion has not happened before to such extent. If anyone has a better explanation, we would love to hear from you:

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