The Euro Interbank Offered Rate, commonly known as Euribor, is a benchmark interest rate at which European banks lend money to each other in the interbank market. It is a critical financial indicator that influences various financial products, including mortgages, loans, and savings accounts across the Eurozone and is the reference rate used for all mortgages in Spain.

What is Euribor?

Euribor represents the average interest rate at which a group of European banks are willing to lend unsecured funds to one another. It is calculated daily and is available in different maturities, ranging from one week to one year. Key characteristics of Euribor include:

• Transparency: The rates are based on real transaction data submitted by a panel of banks.
• Benchmark Role: Euribor serves as a reference rate for numerous financial contracts and products.

History of Euribor

Euribor was established on January 1, 1999, coinciding with the introduction of the euro currency. It was developed by the European Banking Federation (EBF) to provide a standardized benchmark for interbank lending within the Eurozone. Over the years, Euribor has undergone several modifications to improve its accuracy and transparency.

Key Euribor Milestones

• 1999: Launch of Euribor with different maturities ranging from one week to 12 months.
• 2008-2012: Financial crisis exposes vulnerabilities within interbank lending practices, leading to calls for reform.
• 2013: Introduction of tighter regulations and enhanced oversight to improve the integrity of Euribor rates.
• 2019: Transition to a new hybrid methodology that incorporates real transaction data to calculate rates, increasing reliability.

How is the Euribor is Calculated?

Euribor rates are determined through a standardized process:

1. Panel Banks: A selected panel of banks submit quotes reflecting the rate they believe a prime bank would pay for unsecured funds within the Eurozone. There are currently 19 panel banks, 4 of them from Spain.
2. Data Collection: The quotes are collected daily by the European Money Markets Institute (EMMI).
3. Calculation: The highest and lowest 15% of the submitted quotes are discarded, and the average of the remaining quotes is calculated to determine the Euribor rate for each maturity.

What does the Euribor influence?

Euribor influences various aspects of the financial system:

• Mortgages and Loans: Many variable-rate mortgages and loans in Spain and the Eurozone are tied to Euribor rates, making these products sensitive to changes in Euribor.
• Financial Markets: Euribor serves as a reference rate for various derivatives, such as interest rate swaps and futures.
• Monetary Policy: Central banks monitor Euribor rates as an indicator of interbank lending conditions and liquidity in the banking system.

Euribor is a key part of the Eurozone’s financial system. It sets a standard interest rate for banks to lend money to each other and affects many financial products, such as loans and mortgages. Understanding its history, calculation process and impact can help consumers who have a mortgage in Spain or are considering one make better decisions.

The below chart shows the all time changes for the Euribor 12 month rate.