What Is a Prime Bank? A Euribor–OIS Spread Perspective

Since the outbreak of the financial crisis in 2007, the level and volatility of the Euribor–OIS spreads have increased significantly. According to the literature, this variability is mainly explained by credit and liquidity risk premia. I provide evidence that part of the variability might also be explained by ambiguity in the phrasing of the Euribor survey. The participants in the survey are asked at what rate they believe interbank funds are exchanged between prime banks; given the lack of a clear definition of a prime bank, this question might leave room for subjective judgment. In particular, I find evidence that some of the variability of the Euribor rates might be explained by changes in the survey participants' perception of what a prime bank is. This evidence adds to the difficulties already encountered by previous studies in identifying and measuring exactly the determinants of the Euribor rates. I argue that these difficulties are at odds with the clarity, simplicity and replicability that should be required of a widely used financial benchmark.