AMERIBOR: AFX’s next big alternative to LIBOR And SOFR

With Libor set to sunset in 2021, here is an update on the progress of the American Financial Exchange (AFX) and its interest rate benchmark, AMERIBOR, or the American Interbank Offered Rate. As you know, neither LIBOR nor SOFR serve the requirements of the thousands of banks across America which do not borrow at either LIBOR or SOFR to fund their balance sheets. Many of these banks use AMERIBOR because it reflects their actual borrowing costs.

AMERIBOR

geralt / Pixabay

  • AFX now has 157 members with combined assets of more than $2 trillion, most between $5 billion and $250 billion. Since its launch in December 2015, cumulative lending has exceeded $500 billion – and volume and membership continues to grow. In second quarter 2019, average daily volumes of on AFX was over $1.80 billion.  AFX launched a 7-day collateralized futures product that started trading on the Cboe Futures Exchange (CFE) in August 2019.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Q2 hedge fund letters, conference, scoops etc

The AMERIBOR daily interest rate is now published daily by the AP, Bloomberg, Google Finance, Investor’s Business Daily and other news outlets.

AMERIBOR - The greater the choice, the greater the market efficiency

AFX Chairman and CEO Richard Sandor believes that many interest rate benchmarks will emerge after Libor and that choice will benefit all market participants. There is no one-size-fits all benchmark when it comes to lending and borrowing.

To date, SOFR appears to be the most popular alternative to LIBOR for large institutions that can borrow unsecured. The daily SOFR is based on transactions in the Treasury repurchase market, where investors offer banks overnight loans backed by their bond assets. SOFR, however, tracks secured debt. For regional banks borrowing and lending unsecured debt, AMERIBOR is a better option.

This benchmark tracks the real-time lending and borrowing activity of small and mid-sized banks, asset managers and other unsecured market participants. Ameribor is a volume-weighted interest rate, calculated daily from the average interest AFX users charge each other for unsecured loans overnight.

Markets function more efficiently when buyers have choice. When banks can select among multiple benchmarks, they may be able to borrow funds at lower rates or lend at higher rates. All market participants will benefit from increased transparency, as benchmarks reflect financing activity in real time. The lending markets after LIBOR will be less monolithic, but that will lead to more market efficiency, not less.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold