Banks prepare 'Euribor Plus', the new reference rate for mortgages

• Estimated rates to be substituted by real ones
• Problems with setting rates into the future

EUROPE -- The scandals involving manipulation of several monetary rate indexes, in which some of the continent's largest banks were implicated, such as Société Générale, Deutsche Bank and RBS, who were fined some of the largest sums imposed by Brussels, have forced the European Commission to create a new standard rate for mortgages. Thus, the Euribor (Euro Interbank Offered Rate) will be substituted for what is for the time being is called Euribor Plus, which may well end up being the name used in future. Work continues on the new rating system, though it is still at an advanced planning stage. The four Spanish banks that are on the panel that contributes to set the Euribor interbank rate (BBVA, Santander, CaixaBank and CecaBank) have already been informed of how the new rate will be working, as have all the other banks making up the panel. The Euribor is the index that shows the interest rates at which banks lend to one another and is therefore used as the base for other loans, including mortgages.

In Spain, over 80% of the banks use the Euribor indicator, which is calculated at the estimated rates used daily among the 25 entities on the panel. In other words, the rate does not depend on the actual loans the bank makes, but rather on its estimates of what it will be charging that day, and is therefore subject to manipulation, as has been the case.

The Euribor Plus, however, will be based on the real lending rates used by the banks on the panel. It is supposed that this will make them less subject to manipulation. However, sources at financial entities say that one of the problems in calculating the new Euribor Plus is that operations are rarely set at any more than three months ahead, in the present inter-bank market, whereas mortgage rates are established for at least a year.