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How the LIBOR Transition Affects the Supply of Revolving Credit

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Abstract

In the United States, most commercial and industrial (C&I) lending takes the form of revolving lines of credit, known as revolvers or credit lines. For decades, like other U.S. C&I loans, credit lines were typically indexed to the London Interbank Offered Rate (LIBOR). However, since 2022, the U.S. and other developed-market economies have transitioned from credit-sensitive reference rates such as LIBOR to new risk-free rates, including the Secured Overnight Financing Rate (SOFR). This post, based on a recent New York Fed Staff Report, explores how the provision of revolving credit is likely to change as a result of the transition to a new reference rate.

Suggested Citation

  • Darrell Duffie & Cooperman Harry & Alena Kang-Landsberg & Stephan Luck & Zachry Wang & Yilin Yang, 2023. "How the LIBOR Transition Affects the Supply of Revolving Credit," Liberty Street Economics 20230203, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:95592
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    File URL: https://libertystreeteconomics.newyorkfed.org/2023/02/how-the-libor-transition-affects-the-supply-of-revolving-credit/
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    More about this item

    Keywords

    bank funding risk; reference rates; LIBOR; SOFR; Secured Overnight Financing Rate (SOFR); credit supply; regulation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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