Methodology

Hybrid Methodology

To ensure Euribor’s robustness and representativeness, and comply with the European regulation on financial benchmarks and interest rate benchmarks (Benchmarks Regulation of the European Union or BMR), a Hybrid Methodology has been developed and implemented, allowing Euribor^® to remain fit-­for-­purpose in any market circumstances, and always compliant with the latest regulatory requirements and industry recommendations.

With the Hybrid Methodology, the contributions to the determination of Euribor^® made by the Panel Banks follow a three-level hierarchical approach.

Waterfall methodology

Level 1 consists of contributions based solely on eligible transactions in the unsecured euro money market, with a minimal notional amount of 10 million euros – a criterion which has been amended in 2021 as the amount stood at 20 million previously. The contribution rate of each Panel Bank is calculated using the volume weighted average rate of the eligible transactions by tenor.

Where a Panel Bank has insufficient Eligible Transactions for a Level 1 contribution to be calculated for a given tenor, but nonetheless has had transactions in nearby maturities or from prior dates the Panel Bank’s contribution can be calculated using a further range of calculation techniques in order to make a Level 2 contribution for that tenor. EMMI permits three Level 2 contribution techniques. These techniques should be employed progressively and in the order specified below:

• Level 2.1: adjusted linear interpolation from adjacent Defined Tenors;
• Level 2.2: Transactions at non-Defined Tenors;
• Level 2.3: Eligible contributions from prior dates with the Market Adjustment Factor.

Annual review 

The regulation of the European Union on financial benchmarks (BMR) requires benchmarks administrators to periodically review their benchmarks’ methodologies.

The European Money Markets Institute performs such review of the Hybrid Methodology for Euribor^® annually with a twofold objective:

• Confirming that the benchmark remains robust, resilient, and representative of its underlying market
• Identifying any potential for further beneficial recalibrations