Libor volatility due to poor liquidity-JPMorgan

NEW YORK, May 16 (Reuters) - The Libor interbank rate-setting process is not broken, and recent rate volatility can be blamed largely on reluctance among banks to lend to each other amid the current credit crunch, JPMorgan said on Friday.

JPMorgan (JPM.N) is one of the 16 banks surveyed by the British Bankers' Association daily to set or "fix" the daily London Interbank Offered Rates on overseas dollar deposits.

"The question of whether a benchmark could be designed that is less flawed than Libor is debatable," JPMorgan analysts said in a note published on Friday.

Moreover, the spread of three-month Libor and three-month overnight index swap (OIS) rate, a gauge of banks' aversion to lend to each other, was hovering at historically wide levels until recently.

JPMorgan analysts said the difference between the two rates will shrink sharply in the coming months in response to efforts by global central banks to increase liquidity. (Reporting by Richard Leong; Editing by Jonathan Oatis)