Bloomberg News

EBF Plans to Start Dollar Benchmark Rate to Rival Libor in April

March 13, 2012

The European Banking Federation, which represents lenders in the region, will start calculating a dollar interest rate for the first time next month as the accuracy of the London interbank offered rate is questioned.

The rate will initially be set through a daily survey of 20 banks, increasing to 30 firms by the end of the year, said Cedric Quemener, a manager at Euribor-EBF, the division that will be responsible for the new lending rate. The Brussels-based group already oversees the Euro interbank offered rate, or Euribor, the level at which European banks say a “prime bank” could borrow for different periods in euros.

Dollar Euribor will compete with Libor, the benchmark for $360 trillion of securities worldwide that is managed by the British Bankers’ Association in London. The EBF isn’t the first to try to challenge Libor’s hegemony. ICAP Plc (IAP), the biggest broker of transactions between lenders, started the New York Funding Rate, a measure of U.S. bank rates, in 2008.

“We thought about having the European banks being more represented in a dollar fixing, along with international big players in the European market, like Chinese banks,” Quemener said in an e-mail today.

Regulators from Canada to the U.S. and Japan are probing whether banks lied to hide their true cost of borrowing and traders colluded to rig Libor, the basis for interest rates on securities from mortgages to derivatives. European Union regulators are also probing whether banks colluded while setting Euribor.

Alternative Rate

The EBF first started discussions about starting an alternative dollar rate to Libor in 2010 in response to demands from market participants. The EBF spent the last six months testing the rate. Euribor contributors are asked each day in a survey how much a “prime bank” other than themselves would pay to borrow in euros for different maturities. The dollar rate will be set on a similar basis.

“We understand that the launch of this product is a response to consultation between Euribor-EBF and its stakeholders,” BBA spokesman Brian Mairs said in an e-mailed statement. “We support any move that offers more choice to market participants.”

Libor was inaugurated in the mid-1980s as banks and investors sought a dollar rate that was set outside the U.S. in the wake of the previous decade’s oil crises, which saw Arab and Soviet producers park proceeds from dollar-denominated sales of crude with London banks to shelter revenue from confiscation by U.S. authorities.

To contact the reporters responsible for this story: Gavin Finch in London at gfinch@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editor responsible for the story: Edward Evans at eevans3@bloomberg.net


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