Ameribor 'fully appropriate' as US Libor alternative for some banks, Fed chairman says

US Federal Reserve Chairman Jerome Powell said it would be “fully appropriate” for regional and mid-sized banks to use the Ameribor interest-rate benchmark as a replacement for tarnished Libor.

“Market participants should seek to transition away from Libor in the manner that is most appropriate given their specific circumstances,” he said in a letter to Senator Tom Cotton.

Powell added: “While it is a fully appropriate rate for the banks that fund themselves through the American Financial Exchange or for other similar institutions for whom Ameribor may reflect their cost of funding, it may not be a natural fit for many market participants”.

The Fed-sponsored Alternative Reference Rates Committee has designated the Secured Overnight Financing Rate as its preferred alternative to Libor. The panel is overseeing the voluntary transition from Libor, which is to lose guaranteed support from regulators starting at the end of 2021.

The American Financial Exchange, which created Ameribor, is an electronic marketplace for regional and mid-sized banks to lend and borrow short-term funds.

— Powell letter —

Powell made his comments in a May 28 response to a question from Cotton, an Arkansas Republican. The letter was released today by the American Financial Exchange.

Ameribor, the Fed chairman said, is “based on a cohesive and well-defined market that meets the International Organization of Securities Commission’s principles for financial benchmarks.”

American Financial Exchange Chairman Richard Sandor said today that Powell’s statement “is key to the development of SOFR and Ameribor.”

“Both are complementary to each other and offer robust alternatives as the market transitions away from Libor,” he said.

American Financial Exchange volume has soared almost 23-fold in the last four years, to $2.6 billion a day.