Weaknesses in NIBOR

Abstract

High-frequency data from Thomson Reuters provide an opportunity to study in detail how individual banks have determined their NIBOR contributions. The analysis shows that the individual panel banks’ contributions to NIBOR vary considerably in relation to each other, without following any obvious pattern that can be explained by market conditions. The unsystematic variation around the average is considerably wider for NIBOR banks than for banks on the USD LIBOR panel. The data set contains many examples to show that individual panel banks have on some occasions adjusted their NIBOR contributions in the opposite direction from the other panel banks, by adjusting either the forward premium or the USD rate applied as a basis. In several cases, these adjustments have influenced the NIBOR fix that day. The underlying reasons for these changes are not apparent to non-panel market participants. Whatever the reason for these changes, non-panel participants’ confidence in NIBOR as a benchmark rate may have been impaired as a result. Overall, Norges Bank finds that the data strengthen the arguments in favour of discarding the construction of NIBOR as an fx swap rate.