Jailed bankers ruling could hit key loan rate, warn founders

BBC: The founders of a key European interest rate benchmark have said its accuracy could be affected as a result of a “deep misunderstanding” by English courts.
Euribor underpins trillions of euros in loans and tracks the rate banks pay to borrow cash from each other.
The Court of Appeal recently upheld the convictions of two bankers jailed for rigging Euribor and the UK’s Libor.
The ruling risked creating a “permanent bias” in the Euribor rate, its founders said.
To set Euribor, banks make a daily estimate of the interest rate they would pay to borrow a large sum of euros - then an average is taken.

The Court of Appeal ruled that when publishing daily estimates of the cost of borrowing cash, banks must select the cheapest rate at which cash could be borrowed or lent. As a result, it rejected the appeals of Carlo Palombo and Tom Hayes, two former traders who were prosecuted and jailed for “manipulating” Euribor and Libor.
The evidence against them was requests they had made of colleagues to publish “high” or “low” estimates of the cost of borrowing cash, depending on what would help their banks’ trades. However, the founders of Euribor - Helmut Konrad, Nikolaus Bömcke and Jean-Pierre Ravisé - said that was exactly what banks and their traders were expected to do when they set up the benchmark nearly 30 years ago and wrote the code of conduct.
They warned that if banks followed the judges’ ruling, it would favour one group of investors over another.

They said that each day, it would be in the interests of some of the banks to publish a lower estimate of the cost of borrowing cash, in case it might nudge the Euribor average rate in their favour.
But it would also be in the interests of other banks to publish a higher estimate.
Those commercially influenced quotes would balance each other out, said Konrad, Bömcke and Ravisé.
They said that the ruling requiring cash traders to put in the lowest rate on offer in the market would remove that balancing effect, creating a biased Euribor rate.