Cloud Network for Accurate Interbank Interest Rate Calculation
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Solution Overview
Problem
The existing interbank lending market faces inefficiencies and higher transaction costs due to the lack of a single organized market, reliance on estimated interest rates like LIBOR, and uncertainty during financial crises, which affects midsize banks' asset/liability management and risk management.
Innovation Solution
A transparent and rules-based system using cloud computing to determine market-based interbank interest rates through a network of qualified institutions, involving an electronic participation database, processing engine, auction module, and verification module to calculate and adjust market term estimates in real-time, facilitating accurate and fair business transactions.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If LIBOR is used as the benchmark for interbank interest rates, then a global benchmark is provided for all banks, but the rate is based on estimates rather than actual transactions leading to inaccuracies and lack of true price discovery
Solution Approach 1:
The patent replaces the manual estimation process (mechanical system) with an electronic automated system that calculates interest rates based on actual transaction data. The electronic platform automatically collects, processes, and analyzes transaction information from multiple banks to generate accurate benchmark rates, eliminating the need for subjective expert estimates while maintaining global applicability.
2Adaptability or versatility
If multiple benchmarks (LIBOR, FHLB, Eurodollar, repurchase agreements) are used for midsize banks, then various funding opportunities are covered, but true price discovery is lacking due to varying standards, sources and credit criteria
Solution Approach 1:
The patent creates a universal electronic platform that serves multiple functions: it handles various types of interbank transactions (loans, deposits, derivatives), accommodates different bank sizes, and processes multiple currencies. The system maintains adaptability to different funding needs while ensuring consistent, transparent pricing through standardized electronic procedures and centralized transaction data collection.
Solution Approach 2:
The patent changes the fundamental parameter of rate determination from expert estimation to actual transaction-based calculation. By transitioning from subjective parameters (expert opinions, estimates) to objective parameters (actual transaction prices, volumes, terms), the system achieves true price discovery while maintaining versatility across different banking sectors and transaction types.
3Adaptability or versatility
If the interbank funding market remains fractured with multiple actors and rates, then banks have flexibility in choosing funding sources, but transaction costs are higher and market inefficiencies increase
Solution Approach 1:
The patent merges the fragmented interbank funding market into a unified electronic platform where multiple banks, brokers, and financial institutions can interact. The system consolidates transaction data, pricing information, and funding opportunities into a single accessible marketplace, enabling banks to compare and choose from various funding options while reducing transaction costs through standardized electronic processes and improved market transparency.
4Reliability
If during financial crisis banks face uncertainty on counterparty credit worthiness and information asymmetry, then risk management becomes more cautious, but severe constraints are imposed on interbank funding market reducing liquidity
Solution Approach 1:
The patent implements feedback mechanisms where actual transaction data, pricing information, and market conditions are continuously collected and fed back to all participants in real-time. This transparent information flow reduces information asymmetry and uncertainty about counterparty creditworthiness, allowing banks to make more informed risk decisions while maintaining funding liquidity through improved confidence in the market.
Data Source
AI summary
A method and system for more accurately determining and providing market terms for conducting business transactions, wherein a plurality of computers are located at qualified institutions and are connected in electronic association in a cloud communication network, one of which is a server network device that maintains and/or provides the components of the system to process actual transaction data provided by the qualified institutions in real time to calculate market terms that are quickly transmitted back to the institutions. The server network device is a cloud server network device with one or more processors from plural network devices for communication with one or more processors or computers located at the qualified institutions. The market term estimates are calculated using less bandwidth and less processing cycles on the cloud communications network than on a conventional network.