Interest Received by Banks during the Financial Crisis: LIBOR vs Hypothetical SOFR Loans

Urban Jermann

No 29614, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The credit sensitivity of LIBOR helped lenders during the financial crisis. SOFR is not credit-sensitive and would not have provided that support. The cumulative additional interest from LIBOR during the crisis is estimated to be between 1% to 2% of the notional amount of outstanding loans, depending on the tenor and type of SOFR rate used. The amount of LIBOR business loans owned by banks could have been as high as about 2trn, and the overall additional interest income banks received thanks to LIBOR could have been as high as 30bn dollars. The analysis also shows that a compounded SOFR reduces insurance relative to a term SOFR.

JEL-codes: E43 G21 G28 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-cwa and nep-mac
Note: AP CF
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Citations: View citations in EconPapers (3)

Published as Urban Jermann, 2024. "Interest Received by Banks during the Financial Crisis: LIBOR vs Hypothetical SOFR Loans," Journal of Financial Services Research, vol 65(2-3), pages 141-152.

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