May 18, 2008	Sunday	Jamadi-ul-Awwal 12, 1429

NEW YORK, May 17: Bankers on both sides of the Atlantic are addressing problems with Libor, the leading global benchmark rate for inter-bank borrowing, while one brokerage aims to launch a supplemental New York-based backup next week.

Some market participants have called for an alternative US rate benchmark to the London interbank offered rate because its reliability has been questioned during the current global credit crisis.

Bond broker ICAP Plc aims to launch a US-based index on dollar-denominated inter-bank borrowing rates next week, an ICAP source said on Friday.

The index will be called the New York Funding Rate (NYFR).

“We very much hope to launch it next week,” the ICAP source said.

The British Bankers’ Association is discussing its Libor inter-bank rate-setting procedure with major central banks, including the Federal Reserve, as it conducts a review of the procedure, a BBA spokesman said on Friday.

Critics of Libor say the market has become seriously distorted during the current credit crisis as it is based on perceived borrowing costs rather than actual completed trades.

Recent concern focused particularly on the dollar Libor index and worries that some banks were understating how much they had to pay to borrow money in order to avoid being labelled desperate for cash and, as a result, vulnerable to solvency rumours.

Meanwhile, US bank JPMorgan Chase & Co said the Libor inter-bank rate-setting process is not broken, and recent rate volatility can be blamed largely on reluctance among banks to lend to each other amid the current credit crunch.

JPMorgan is one of the 16 banks surveyed daily by the British Bankers’ Association to set or “fix” the daily Libor on overseas dollar deposits.

“The question of whether a benchmark could be designed that is less flawed than Libor is debatable,” JPMorgan analysts said in a note published on Friday.

The BBA has submitted a paper reviewing the Libor rate-setting process to an advisory committee that will decide on May 30 whether to amend how the rates are fixed.

“We’ve had discussions with the Bank of England, Federal Reserve and other central banks,” BBA spokesman John Letizia said.

Banks are under funding and capital pressures not seen for decades, mostly due to the fallout from delinquencies and defaults on subprime mortgage debt.

As a result, the daily benchmark Libor rates bank-to-bank borrowing costs for a range of currencies over a range of maturities are historically high, spreads over secured lending rates are wide, and the market is seriously distorted and coming under increasing scrutiny.

“Everyone is funding at a similar level, but when credit conditions worsen and we have periods like this of unprecedented turmoil, the reality is there is not a single borrowing rate,” Terry Belton, head of global fixed-income strategy at JPMorgan, said in a telephone interview on Friday.

Still, there was some agreement that the ructions in financial markets had brought home the need for at least a review of Libor’s status and processes.

At least one broker, ICAP, is talking about launching its own US version of Libor, but it has yet to get off the ground. That is to address the concern that elevated Libor rates reflect European banks’ demand for dollars, as opposed to rampant counterparty distrust in US banking circles.—Reuters