Thursday, May 20, 2010

Guha: A NYbor?

A push is under way in New York to create a new benchmark for dollar-denominated loans to rival the London interbank offered rate, better known as Libor.

The New York benchmark - dubbed "NYbor" - would put more weight on borrowing costs for US banks and less weight on borrowing costs for European banks.

This follows mounting criticism of Libor in the US. The British Bankers' Association, which compiles the benchmark rate, is reviewing claims that some banks might have misreported their borrowing costs, thus distorting Libor...

The Fed is unhappy about the fact that elevated Libor rates result in high rates for US loans benchmarked against dollar Libor, regardless of the source of the strain on Libor. It thinks the people behind the "NYbor" concept are doing valuable work exploring alternative ways to construct a borrowing benchmark.

But the US central bank leans towards reforming the way Libor is constructed rather than abandoning it in favour of a New York-based measure dominated by the borrowing rates paid by US banks.

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