Panel banks are financial institutions that contribute to the calculation of benchmark interest rates in money markets.
Usage of the Term Panel Bank
The term panel bank is commonly used in the context of financial markets, particularly in relation to the setting of benchmark interest rates such as LIBOR (London Interbank Offered Rate) and EURIBOR (Euro Interbank Offered Rate). These rates are determined based on the submissions from a group of panel banks, which provide estimates of the rates at which they could borrow unsecured funds from other banks in the interbank market.
Panel banks have historically played a crucial role in the calculation of these benchmarks, ensuring they reflect prevailing market conditions. These benchmark rates are widely used as reference rates for pricing various financial instruments, including derivatives, bonds, loans, and mortgages.
Future of Panel Banks
The reliance on panel banks for setting benchmark rates is decreasing as financial markets transition to alternative reference rates (ARRs) based on actual transaction data. This shift aims to reduce the risk of manipulation and enhance transparency in the setting of rates.