ICAP to launch U.S. rate alternative to Libor

By Richard Leong

NEW YORK, May 1 (Reuters) - A top bond broking firm plans to launch as soon as Friday an alternative U.S. rate benchmark to the London interbank offered rate, whose reliability has been questioned during the current global credit crisis.

ICAP plc (IAP.L: Quote, Profile, Research) said on Thursday its survey of borrowing rates between U.S. banks, called the New York Funding Rate (NYFR), is intended to address the shortcomings of Libor cited by traders and analysts.

NYFR will reflect banks' estimate on the market rate to obtain unsecured funding from each other, rather than the rates at which banks say they are borrowing at, which Libor measures.

"By changing the parameters, we will get a different perspective," said Lou Crandall, chief economist at Wrightson ICAP. "Whether it (NYFR) is accurate, the players will know."

ICAP already publishes Eurodollar rates, which are reflected in dollar Libor, on news and data terminals from Bloomberg, Thomson Reuters (TRI.TO: Quote, Profile, Research) (TRIL.L: Quote, Profile, Research) and other information vendors. Those rates are cited by the Federal Reserve in its daily survey of U.S. interest rates.

Crandall said, however, the NYFR is not intended to displace Libor as a rate benchmark. Trillions of dollars of loans and financial instruments around the worldwide are pegged against Libor.

Doubts about Libor picked up steam earlier this month after The Wall Street Journal reported banks contributing dollar quotes to daily fixings had been under-quoting the true cost of funds to avoid being labeled as desperate for cash.

The BBA has taken steps to assure the market about Libor's accuracy, including the expulsion of any bank from its rate survey if it is found acting improperly.