Where your bank gets your mortgage

Euribor is the interest rate at which a large number of European banks do provide short term loans to each another.

The Euribor (Euro Interbank Offered Rate) was first published on Dec 30, 1998 before the introduction of the EUR as a currency on Jan 1, 1999 (see chart below).

Banks which borrow money from other banks can use these funds to  loans to other parties. So the Euribor is the basis of the interest rate which a home buyer has to pay for a mortgage, if he decides to opt for a mortgage in EUR, based upon an adjustable interest rate (also know as a floating rate or variable rate mortgage). it is announced that he will pay the Euribor-rate plus a fixed commission, for example Euribor +1%. If the Euribor-rate increases, the interest which has to be paid increases as well and vice versa. 

The level of the Euribor rates are determined by supply and demand in the first place, external factors like growth/inflation or the refinancing rate, banks have to pay when they borrow money from the European Central Bank. Banks do so when they are short on liquidities.

The 24 panel banks to Euribor are the banks with the highest volume of business in the eurozone money markets.

Libor & Ribor

The London Interbank Offered Rate (Libor) is the primary benchmark for short-term interest rates around the world.

The value of deals determined by Libor is about 450 trillion USD. The rates submitted were what the banks estimate (!!) they would pay other banks to borrow dollars for three months if they borrowed money on the day the rate is being set. 

For years, the Libor was manipulated and traders at several banks conspired to influence the final average rate that results by agreeing amongst themselves to submit rates that were either higher or lower than their actual estimates.

Oversight of Libor was passed from the British Bankers’ Association to the Intercontinental Exchange – and the new ICE-Libor-rates are now based on actual transactions.

In Romania the rates on the interbank market are called Robid (Romanian Interbank Bid Rate – for deposits) and Robor (Romanian Interbank Offer Rate – for credits) in RON. Both are calculated on a daily basis 10 commercial banks. 

The ROBID/ROBOR interbank money market reference rates are calculated on a daily basis as an arithmetic mean of the interest rates posted by 10 commercial banks. The banks are selected according to the performance criteria previously defined, and the list is updated every 6 months. 

Find the detailed rules for Robid/Robor in the attached document.

Whether it’s the Euribor, the ICE-Libor or the Robor – all interest-rate benchmarks are published in several maturities – the most important is usually the 3-month rate.

Euribor 3-months since inception