* EMMI shelves transaction-based Euribor
* ECB ready to look into own overnight index (Combines ECB, EMMI; adds detail)
By Francesco Canepa and Francesco Guarascio
FRANKFURT/BRUSSELS, May 4 (Reuters) - The European Central Bank said on Thursday it is ready to work on its own index of bank-to-bank lending, a key indicator for borrowers, policymakers and investors, after an industry-led revamp of the fraud-hit Euribor failed.
Inter-bank lending rates such as the Euro Interbank Offered Rate (Euribor) and its London equivalent Libor are used to price billions of euros worth of derivatives and, in some countries, to determine the interest rates on mortgages.
They are also closely watched by central bankers as a gauge of the health of the banking sector and appetite for lending.
But confidence in both benchmarks has been shattered by market manipulation scandals in recent years, forcing central banks to take action.
"The ECB and the Eurosystem stand ready to investigate the possible provision of an unsecured overnight benchmark based on data already available (to the central banks)," an ECB spokesman said. "Such a benchmark could serve as an alternative reference rate in some scenarios."
The announcement came minutes after the industry body that publishes Euribor, the European Money Market Institute (EMMI), shelved its plan to make the index harder to manipulate by using actual transaction data rather than submissions by banks.
The failure is partly due to banks having cut their reliance on unsecured lending, on which Euribor is based, in favour of lending against collateral or with cash raised directly from the central banks.
"The decrease in the daily market activity under the current market conditions, does not allow for a methodology which is fully based on transactions, as this would not yield a sufficiently sound and robust benchmark," EMMI said in its report.
EMMI added it would now explore developing an alternative "hybrid" index "supported by transactions whenever available and relying on other prices when necessary".
The ECB spokesman stressed that "market participants should primarily be responsible for producing interest rate benchmarks".
This suggested that it was still up to the industry to set up benchmarks for maturities longer than one day and ensuring continuity for contracts based on the old benchmarks.
Frankfurt follows in the footsteps of the Bank of England and the U.S. Federal Reserve, which have announced similar moves in recent months. (Editing by Catherine Evans)