Conflict of interest: banks call for unity on Eonia
Eonia’s dive into negative territory has raised questions about whether collateral posters should also be paying interest – generally, traders think they should, while lawyers disagree. There is not much money at stake, but divided valuation practices would threaten the market’s integrity.
Three different banks, three different answers: yes, says one senior rates trader, his bank will be paying. No, says one markets head, the bank's lawyers are very clear on the matter – no payment is required. The third is firmly in I-will-if-you-will mode: "A lot of guys are saying they will not pay. We're not going to pay on one side if we don't receive on the other," says a rates trading head.
The question each was asked is whether they will pay interest on collateral they have posted against
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