Is There a Need for NYbor?

nyborAre European banks significantly riskier than American banks? Looking at RBS’s decision to raise $24 billion in new capital, it certainly seems that way: the move will take RBS’s tier-one capital from a normal-for-Europe 4.5% up to a normal-for-the-US 6%.

And so it’s maybe not surprising that US interbank borrowing rates are lower than European interbank borrowing rates. The spread at the moment is 4bp, which is significant enough, but Carrick Mollenkamp reports that it could widen further, to as much as 10bp, as Libor continues to widen out to reflect reality rather than wishful thinking.

The inevitable result is that some bright spark (Scott Peng of Citigroup, to be precise) has proposed a "NYbor" measure of US interbank rates. Which is a bit weird, given that the WSJ was able to run its accompanying chart in the first place: clearly someone is already measuring these things. So the idea is clearly that NYbor not be simply used as an indicator of transatlantic spreads – that’s something which already exists – but rather as a replacement for Libor. And that seems a little excessive to me.

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