USD ICE Bank Yield Index (IBYI) – an alternative to LIBOR?

In January 2019, ICE Benchmark Administration (IBA), (currently the LIBOR benchmarks administrator), proposed a new interest rate index, the U.S. Dollar ICE Bank Yield Index (IBYI).

It has been developed to meet the potential benchmark needs of lenders, borrowers and other users of non-derivative (or “cash”) products that have typically sought term interest rate benchmarks linked to the average funding rates of a broad group of large banks.

The fully transaction-based index is designed to measure the average yields at which investors are willing to invest U.S. dollar funds over one-month, three-month and six-month periods on a wholesale, senior, unsecured basis in large, internationally active banks.

ICE Benchmark Administration Limited (IBA) published a second update regarding the U.S. Dollar ICE Bank Yield Index (IBYI) on July 10, 2019.

IBA has published this second update to:

1. Provide a summary of the feedback IBA has received on the Index during the comment period;

2. Present a potential update to the methodology whereby the Index is determined by combining a SOFR yield curve and a bank credit-spread curve based upon transactional data; and

3. Provide updated testing results covering the period from January 2018 to the end of June 2019, which are also available on IBA’s website.

IBA is inviting comment from market participants on the index and the feedback questions on page 19 on or before September 30, 2019.

They have specifically requested that corporates comment on:

“Should IBA establish a minimum volume and/or transaction count standard that needs to be met to construct the credit-spread curve over a five-day (or other appropriate) transaction window?

If so, please provide feedback as to what the minimum volume and/or transaction count should be (e.g. a minimum volume target of $15 billion and/or 150 discrete transactions). If this standard is not met during the relevant transaction window, then should IBA use data from a longer time period until such point as the credit-spread curve can be constructed with enough data points to meet the standard (i.e. potentially use six, seven, eight, etc. days’ worth of data until the minimum standard is met)?”