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Eonia® is an abbreviated form of Euro OverNight Index Average. It is one benchmark interest rate that is sponsored by Euribor-EBF, the European Banking Federation. Eonia® is the overnight rate, and it is calculated using the interest rates that member banks charge each other for unsecured loans, or loans that are made without collateral. The shortened form of its name is a registered trademark of Euribor-EBF.
Eonia® is based on overnight lending rates in the Eurozone. Banks are required to have a certain percentage of their deposits on hand to satisfy withdrawal demands, and sometimes banks fall short of their requirements because of daily fluctuations in deposit levels. To meet reserve requirements, banks often lend funds to each other overnight. These loans are unsecured, and they are repaid the next day. The lending bank profits from gaining interest on its excess reserves, and the borrowing bank meets regulations.
To calculate this rate, Euribor-EBF and the European Central Bank keep track of all of the unsecured overnight lending that occurs between the banks in the European Banking Federation. Eonia® is a weighted average of all of the loans of this type that occur in the Eurozone. Thus, it represents a benchmark rate for overnight loans between banks that are transacted in the euro.
Euribor-EBF was created concurrently with the introduction of the euro in 1999. It is an international nonprofit association that functions under Belgian law. National banking associations from the European Union’s member states comprise Euribor-EBF. To join, a national association must be based in a country that uses the euro.
The purpose of Euribor-EBF is to sponsor benchmark interest rates. It has four benchmarks. The first Eonia® rate was reported on 4 January 1999. The only guaranteed sources of accurate rates for benchmarks sponsored by Euribor-EBF are Reuters and the Euribor-EBF website.
Euribor-EBF sponsors three benchmark rates in addition to Eonia®. Euribor®, the Euro Interbank Offered Rate, is also based on unsecured loans between member banks, but Euribor® is not limited to overnight loans. Eurepo® is a benchmark for interbank lending that does require collateral. The borrowing bank must supply Euro-dominated General Collateral, of Eurepo® GC, to insure the loan.
The final benchmark sponsored by Euribor-ETF is called Eoniaswap®. To calculate this, Euribor-EBF collects estimates that are quoted by a select group of banks. These banks quote the interbank rate for Eonia® swaps; that is, interest rate swaps where the underlying interest rate is the Eonia® benchmark. The average of these quotes gives Eoniaswap®.