Libor Competitor Up and Running

ICAP, a bond broker based in the U.K., launched the New York Funding Rate this morning, its competitor to the Libor -- a measure of the average interest rate at which banks lend to one another. An amazing $150 trillion of financial products are indexed to Libor.

There are three big differences between how the two measures are calculated:

1. For Libor, the British Bankers' Association asks 16 banks to report borrowing rates offered to them. The BBA takes the middle 8 of these and reports the average. For the NYFR, ICAP polls at least 16 banks for perceived market borrowing costs. The bottom and top 25 percent of these rates are tossed and ICAP reports the average of the remaining rates.
2. The ICAP process is anonymous, whereas the rates reported to the BBA by individual banks are on the record.
3. The Libor is released at around 6 a.m. while the NYFR is released at 9:30 a.m. each morning.

There's been a lot of controversy in recent months over the accuracy of Libor, with this WSJ study claiming that the likes of Citigroup and J.P. Morgan may have been underreporting Libor rates as not to reveal how "desperate for cash" they were.

So, now that both number are live, how do they compare with each other?

Here are the 1-month and 3-month Libor rates since last week.

So far, so good, the biggest discrepancy was this morning's 3-month numbers with the Libor higher by 2 basis points. But if there are some shenanigans going on, what's to stop a bank from using the 6:30 a.m. Libor number, fudging it a bit, and reporting that later in the morning?