November 7, 2023

A New Market in Unsecured Interbank Funding Steps Up

Euromoney: A new market in unsecured interbank funding steps up

See below for excerpts from a recent Euromoney feature. For the full article, see here.

The AFX marketplace provides a new venue for US regional and community banks to lend and borrow from each other overnight. It could be the foundation for a new credit-sensitive benchmark rate.

In the US, a venture-owned fintech company is building a marketplace where something quite revolutionary is happening.

Whisper it, but it seems that banks that find themselves with an excess of deposits might lend them out overnight to other well-capitalized banks that find themselves temporarily short of funds.

For such short-term loans, banks do not even require collateral.

One might call this an interbank funding market. A robust one might be useful, given this year’s tremors when a few regional banks saw sudden, rapid and wholesale flight of customer deposits.

There are about 4,600 banks in the US, of which around one third have assets above $1 billion and are the target market for AFX.

“This is a robust interbank lending market,” John Shay, chief executive of AFX tells Euromoney. “We have 300 active users, including many regional and community banks that are core lenders to the real economy and would like to earn more on their surplus funds than they can be depositing the mat the Fed.”

AFX says that it does about $2 billion of business each day, but there is clear potential to do much more. Lending banks have approximately $67 billion available to borrowing banks through 1,800 separate credit lines.

To read more, see here