On April 24, 2019 Clarus Financial Technology (CFT) released an article discussing Ameribor and how it could impact the market.
Ameribor is defined as an interest rate index that is derived from “Unsecured overnight lending taking place across the American Financial Exchange (AFX),” according to Ameribor.net.
The article stated that Ameribor is not a risk free rate. It is overnight comprised of loans from “small and mid-sized banks, broker-dealers, insurance companies, private equity firms, hedge funds, FCMs, asset managers and finance companies,” says Richard Sandor, Chairman and CEO of the AFX.
According to the article, Ameribor is created to be an accompaniment to pre-existing rates instead of a challenger rate. Ameribor differs from other interest rate indices in that it is 100% created with transparent transactions, it is only on-shore transactions, the volume scored average of the loan is calculated and it is an unsecured overnight rate.
Ameribor.net released how the rate has performed over its history and it has shown consistent results, staying correlated between Fed Funds and LIBOR.
The article explained the volume underlying Ameribor by stating, “Ameribor is based on a daily average of $1.452bn as of 29th March 2019. Fed Funds is based on a daily average of $71.95bn during March and April 2019. That is a pretty big gulf in volumes that Ameribor needs to work on closing. The growth rate of Ameribor volumes has been impressive, but it still has a long way to go.” Ameribor will need to continue to grow for it to become more relevant in the market.
“Ameribor currently serves a very specific purpose – to measure unsecured overnight lending between regional banks in the US. It is therefore beneficial to the broader market to have Ameribor as a credible index,” says Chris Barnes, CFT author.
For the full article: Clarus Financial Technology