Global index provider Bloomberg Indexes in November 2013 launched a new index that measures credit risk and funding rates of high-quality European banks.
The Bloomberg European Banks Funding Margin Index works by calculating the average spreads of euro currency bonds to ensure transparency in risk assessment. It aims to provide an accurate reflection of the borrowing costs of major European banks by measuring a six-month moving average of asset swap spreads of the bonds from 20 highly rated European banks.
According to the firm, 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 lending projects, such as mortgages, and gives more precise risk pricing.
The new Index’s constituent bonds are a subset of the Bloomberg EUR Investment Grade European Corporate Bond Index.