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

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  • Urban Jermann

    (Wharton School of the University of Pennsylvania and NBER)

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.

Suggested Citation

  • Urban Jermann, 2024. "Interest Received by Banks during the Financial Crisis: LIBOR vs Hypothetical SOFR Loans," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(2), pages 141-152, June.
    • Handle: RePEc:kap:jfsres:v:65:y:2024:i:2:d:10.1007_s10693-023-00415-5
    DOI: 10.1007/s10693-023-00415-5
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    More about this item

    Keywords

    LIBOR; SOFR; Financial crisis; G21; G28; E43;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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