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Primarily used by regional, community, and mid-sized banks, AMERIBOR serves as an alternative to LIBOR and complements other rates like SOFR (Secured Overnight Financing Rate).
Designed for transparency and efficiency, AMERIBOR is rooted in real-world, market-driven transactions on the AFX platform, ensuring accuracy and reliability for market participants.
AMERIBOR reflects the interest rates at which US banks and financial institutions borrow funds overnight on an unsecured basis. Its value is calculated as a volume-weighted average of eligible loans traded on the AFX electronic marketplace.
Key features of AMERIBOR’s methodology:
The AFX platform facilitates trading between participants, ensuring AMERIBOR is representative of prevailing market conditions.
AMERIBOR was developed to meet the needs of regional and community banks that play a critical role in lending to small businesses and consumers across the United States. Unlike SOFR, which is based on secured repo transactions and primarily suits larger institutions, AMERIBOR reflects unsecured borrowing costs for smaller, relationship-driven lenders.
Key benefits:
By providing a credible benchmark, AMERIBOR allows financial institutions to price loans, deposits, and other products accurately.
The following example illustrates how AMERIBOR is calculated based on transactions executed on a single day:
The AMERIBOR Rate is the weighted average of these trades, calculated as:
AMERIBOR= (10M×3.25)+(15M×3.30)+(25M×3.28) 10,000,000+15,000,000+25,000,000
AMERIBOR = 3.28%
The table below highlights the differences between AMERIBOR, SOFR, and LIBOR:
Market-Based: Reflects actual borrowing activity rather than theoretical estimates.
Tailored for Smaller Institutions: Aligns with funding practices of regional banks.
Complementary to SOFR: Offers an unsecured benchmark alongside SOFR’s secured rate.
Liquidity Concerns: AMERIBOR has lower trading volume compared to SOFR.
Limited Adoption: Primarily used by US-based regional banks; less adoption globally.
AMERIBOR is primarily used by community banks and mid-sized lenders for pricing loans, deposits, and other financial products.
A regional bank issues a commercial loan tied to AMERIBOR:
This structure ensures borrowers and lenders have a clear, transparent benchmark aligned with the market.
AMERIBOR is an essential benchmark rate developed to meet the needs of regional and community banks in the United States. As a transparent, market-driven rate, it reflects unsecured interbank borrowing activity, making it a reliable alternative to LIBOR for smaller institutions.
In the post-LIBOR era, AMERIBOR offers a valuable tool alongside SOFR, ensuring a diverse and robust benchmark ecosystem tailored to various financial markets.