Industry’s First Transparent, Market-Driven Credit Risk and Funding Rate Benchmark of European Banks
Bloomberg Indexes today unveiled the Bloomberg European Banks Funding Margin Index, an innovative new benchmark that provides the first market-driven measurement of credit risk and funding rates of high-quality European banks. The new index calculates the average spreads of Euro currency bonds to ensure transparency in risk assessment. Bloomberg Indexes intends to license the index to leading financial institutions throughout Europe.
“There is a clear need for a transparent, market-driven benchmark of banks’ credit risk and funding margins,” said Srikant Dash, Head of Bloomberg Indexes. “An objective benchmark ultimately provides real world benefits for borrowers of loans and mortgages looking for accurate interest rate quotes.”
The benchmark is unique in evaluating the credit risk of banks from bond market prices, as opposed to the more volatile credit derivatives market. This enables individual financial institutions to provide independent and reliable benchmarks for mortgages and other lending products. To provide an accurate reflection of the borrowing costs of major European banks, the Bloomberg European Banks Funding Margin Index measures a six month moving average of asset swap spreads of the bonds from 20 highly-rated European banks.
“We believe this objective approach will gain favor among market participants as it enables more precise risk assessment,” Dash said. “We recently licensed the index to a leading European financial institution that will use it as a benchmark for pricing mortgages, loans, swaps and other treasury management products, and we look forward to licensing the index to other leading issuers.”
The Bloomberg European Banks Funding Margin Index, as well as all of Bloomberg’s fixed income indexes, is built on the firm's legacy of bringing transparency to bond markets. The Bloomberg European Banks Funding Margin Index's constituent bonds are a subset of the Bloomberg EUR Investment Grade European Corporate Bond Index. All index pricing is calculated independently by Bloomberg and there is full transparency to the constituent bonds, prices and asset swap spreads via the Bloomberg Professional Service. The Bloomberg European Banks Funding Margin Index ticker is BXEBFM.