New Bretton Woods Committee Article: Credit Spreads, Financial Stability, and the Next Stage of Benchmark Reform
SOFR Academy Senior Advisor Alex Roever has published a new article with The Bretton Woods Committee examining the importance of robust, transaction-based credit-spread supplements in a financial system centered on SOFR.
The article explains that, while SOFR provides a strong and transparent risk-free-rate foundation for U.S. markets, it does not directly reflect changes in bank funding costs or broader credit conditions. This distinction becomes especially important during periods of financial stress, when bank funding spreads may rise sharply at the same time that corporate borrowers draw more heavily on committed credit lines. In those circumstances, a mismatch between lending economics and banks’ marginal funding costs can place pressure on credit supply, particularly for regional and mid-sized institutions.
Against this backdrop, the article discusses how AXI and FXI are designed to complement SOFR by providing transparent, transaction-based measures of bank funding conditions and broader credit-spread risk. Used alongside SOFR, such measures can help lenders, borrowers and policymakers better observe and manage funding stress, support more resilient credit provision, and strengthen the post-LIBOR benchmark framework.
Read the full article on The Bretton Woods Committee website:
Credit Spreads, Financial Stability, and the Next Stage of Benchmark Reform
Alex Roever is Senior Advisor to SOFR Academy, an American financial market infrastructure company. He previously spent more than 25 years at J.P. Morgan Securities, where he served for nearly a decade as Managing Director and Head of U.S. Interest Rate Strategy. Mr. Roever represented J.P. Morgan on the Financial Stability Board’s Market Participants Group, which was charged with recommending enhancements to major interest rate benchmarks, including IBORs, following the Global Financial Crisis. He is a CFA Charterholder and has also served as a Senior Director at CFA Institute. ([email protected]).
This note is provided for informational purposes by SOFR Academy, Inc. (Sofr.org), a financial engineering firm headquartered in New York. This note is not designed to be taken as advice or a recommendation for any investment decision or strategy. Readers should make an independent assessment of relevant economic, legal, regulatory, tax, credit, and accounting considerations and determine, together with their own professionals and advisers, if the use of any index is appropriate to their goals. Neither the USD Across-the-Curve Credit Spread Index (AXI), nor the USD Financial Conditions Credit Spread Index (FXI) are associated with or sponsored by the Federal Reserve Bank of New York or the Federal Reserve System. Additional information about SOFR Academy, AXI and FXI can be found here.
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