Ooooh, a big, bad broker in the U.S. is reportedly cooking up an all-new Libor: the New York Funding Rate, or NYFR, a Frankenstein that could be unleashed upon the world as soon as today. While we submit that perhaps the U.S. should be a bit more concerned about its widows and orphans getting slammed by the nation’s inflation-indexed savings bond paying out 0% for the first time ever, and not about banks nonplussed by Libor, we digress. The broking firm launching “nyfer” assures us that it isn’t looking to replace Libor (yeah, like it wouldn’t if it could) but we’re pretty sure no one is about to start pegging their trillions of dollars of loans off something by this dubious moniker. (Thanks for the laughs, anyway.) And now, here’s exactly how this odd concoction will work.
A top bond broking firm plans to launch as soon as Friday an alternative U.S. rate benchmark to the London interbank offered rate, whose reliability has been questioned during the current global credit crisis.
ICAP plc said on Thursday its survey of borrowing rates between U.S. banks, called the New York Funding Rate (NYFR), is intended to address the shortcomings of Libor cited by traders and analysts.
NYFR will reflect banks' estimate on the market rate to obtain unsecured funding from each other, rather than the rates at which banks say they are borrowing at, which Libor measures.
"By changing the parameters, we will get a different perspective," said Lou Crandall, chief economist at Wrightson ICAP. "Whether it (NYFR) is accurate, the players will know."
ICAP already publishes Eurodollar rates, which are reflected in dollar Libor, on news and data terminals from Bloomberg, Thomson Reuters and other information vendors. Those rates are cited by the Federal Reserve in its daily survey of U.S. interest rates.
Crandall said, however, the NYFR is not intended to displace Libor as a rate benchmark. Trillions of dollars of loans and financial instruments around the worldwide are pegged against Libor.
Doubts about Libor picked up steam earlier this month after The Wall Street Journal reported banks contributing dollar quotes to daily fixings had been under-quoting the true cost of funds to avoid being labeled as desperate for cash.