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

12 Pages Posted: 23 Jun 2020

See all articles by Urban J. Jermann

Urban J. Jermann

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: June 11, 2020

Abstract

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.

Keywords: LIBOR, SOFR, financial crisiis

JEL Classification: G21, G28, E43

Suggested Citation

Jermann, Urban J., Interest Received by Banks During the Financial Crisis: LIBOR vs Hypothetical SOFR Loans (June 11, 2020). Available at SSRN: https://ssrn.com/abstract=3624908 or http://dx.doi.org/10.2139/ssrn.3624908

Urban J. Jermann (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
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National Bureau of Economic Research (NBER)

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