FRANKFURT (Reuters) - European lawmakers are working against the clock to extend the life of a discredited interest rate benchmark and avert a crunch that would affect trillions of euros worth of contracts, a senior official said on Friday.
The EONIA benchmark is based on the rate European banks charge for lending to each other overnight and is published by industry organisation, the European Money Market Institute (EMMI).
But banks have shied away from this form of lending following the financial crisis and a series of manipulation scandals involving other benchmark rates such as Libor and the EMMI’s Euribor rates on longer-term loans.
Tilman Lueder, head of the securities markets unit at the European Commission, said two amendments had been tabled to allow the financial industry to keep using EONIA in 2020 but time was “tight” due to EU elections in the spring.
He added discussion on the matter between the European Parliament, the Council and the Commission wouldn’t start before January and lawmakers would then break off in March for the vote.
“Timing is therefore tight and the future of the amendments is uncertain,” he told a conference at the European Central Bank (ECB).
With the data underpinning EONIA dwindling, the rate has become less reliable and won’t comply with EU rules coming into force in January 2020.
But its successor, called ESTER and developed by the ECB, will only be published at some point by October next year, giving the industry too little time to adjust.
ECB Executive Board member Benoit Coeure told the conference ESTER would be published as early as possible but not until the central bank was confident that it was reliable and stable.
Reporting By Francesco Canepa; Editing by Emelia Sithole-Matarise