AMERIBOR

AMERIBOR (American Interbank Offered Rate) is a benchmark interest rate that reflects the average cost of unsecured overnight borrowing as determined by a panel of banks within the United States. It is an alternative to the more widely known LIBOR (London Interbank Offered Rate).

Overview:

AMERIBOR was designed to be a more transaction-based and representative rate for U.S. lending markets, particularly for smaller and regional banks. Its calculation methodology differs from LIBOR in that it is based on actual transaction data from the American Financial Exchange (AFX), an electronic trading platform for interbank funding. This reliance on transaction data aims to provide a more accurate and transparent reflection of the true cost of borrowing for participating institutions.

Calculation Methodology:

AMERIBOR is calculated using a volume-weighted average of overnight unsecured loan transactions on the AFX platform. The rate is published daily.

Purpose:

The primary purpose of AMERIBOR is to serve as a reference rate for a variety of financial products, including loans, derivatives, and other debt instruments. It aims to provide a more reliable and representative benchmark for U.S. lending markets, especially for institutions that may not be as actively involved in the London interbank market, which is the basis for LIBOR.

Adoption and Use:

While LIBOR has historically been the dominant benchmark rate, concerns about its accuracy and susceptibility to manipulation led to a search for alternative rates. AMERIBOR is one such alternative that has gained traction, particularly among smaller banks and those focused on domestic lending. However, it has not achieved the widespread adoption of LIBOR or its successor, SOFR (Secured Overnight Financing Rate).

Comparison to LIBOR and SOFR:

• LIBOR: Based on submissions from a panel of banks estimating their borrowing costs. Its reliance on estimations rather than actual transactions made it vulnerable to manipulation.
• SOFR: Based on actual transactions in the U.S. Treasury repurchase agreement (repo) market. It is secured by U.S. Treasury securities, making it a lower-risk rate than AMERIBOR.
• AMERIBOR: Based on actual unsecured overnight lending transactions among banks on the AFX platform. It aims to be more representative of the cost of funding for smaller banks and regional institutions than either LIBOR or SOFR.

Future:

The future of AMERIBOR depends on its continued adoption and acceptance within the financial industry. As LIBOR phases out, institutions will need to select alternative reference rates, and AMERIBOR remains a potential option, particularly for institutions that find it better suited to their specific funding profiles and business models. The long-term viability of AMERIBOR will be determined by its ability to demonstrate its reliability and relevance to market participants.