The Future of Credit Benchmarks for a Post-LIBOR World: Promoting Economic Growth, Market Stability, and U.S. Competitiveness.
Dear Clients, Partners, and Friends,
I am writing to you with a sense of gratitude and conviction as I reflect on the journey of SOFR Academy and our mission to enhance the stability, transparency, and efficiency of the financial system. Not long ago, a group of ten U.S. regional banks voiced a concern that struck at the heart of our financial system’s resilience. In a letter to regulators, these banks supported the new SOFR benchmark but requested the development of a credit-sensitive supplement – a tool that would help them keep lending through good times and bad by avoiding the mismatches between loan interest and funding costs under stress. This call did not fall on deaf ears. It set in motion a chain of events and innovations that have led us to where we are today.
Origins and Mandate
By October 2020, U.S. regulators convened the Credit Sensitivity Group and issued a landmark interagency letter. In that October 22, 2020 letter, the Official sector made it clear they would not choose a credit-sensitive rate or spread themselves, but encouraged the private sector to innovate in developing credit spread supplements to SOFR. I vividly remember reading that letter—effectively a challenge and an invitation—and feeling both the weight of responsibility and a spark of determination. We accepted that challenge. We knew that if such solutions were to be built, they had to be built the right way: with care, integrity, and broad collaboration. Underpinning this effort was a core belief that any new benchmark must ultimately serve the public interest by strengthening the safety and soundness of the financial system itself. The vision from the beginning was to create something foundational—not just another index, but a new category of reference tools that augment the SOFR-based ecosystem with a scalable, policy-aligned layer of credit sensitivity.
A Fundamentally Unique Benchmark Design
Over the past few years, our team at SOFR Academy has worked diligently to build the necessary infrastructure and credibility for just such an innovation. We understood from the start that any credit-sensitive benchmark must complement SOFR, not compete with it. This principle guided us through countless hours of research, modeling, and consultation with experts and with market participants. Our aim was to craft benchmarks that preserve SOFR’s robustness as a near risk-free rate while adding a fully transaction based credit risk element on top—thereby giving lenders a more complete toolbox without undermining the hard-won trust in SOFR. The foundational academic work behind AXI and FXI by Berndt, Duffie, and Zhu (2020), redesigned credit sensitivity from first principles, deliberately steering clear of legacy constructs like LIBOR. Their unique design drew on observed funding transactions across the maturity spectrum—from overnight out to five years—capturing a more stable and representative view of credit conditions across maturities which automatically adapts to future changes in the composition of fundings.
The result of these efforts was the development of the Across-the-Curve Credit Spread Index (AXI; Bloomberg ticker: AXIIUNS Index) and its extension, the Financial Conditions Credit Spread Index (FXI; Bloomberg ticker: FXIXUNS Index). Following the development of a working prototype in 2021, AXI and FXI were formally launched in 2022 in partnership with Invesco Indexing, making them the first-of-their-kind credit spread supplements to SOFR. These indices are entirely grounded in observable transactions and were explicitly designed to address the very concerns raised by those regional banks—namely, that under a SOFR-only regime, a bank’s loan interest could drop in a crisis even as its funding costs spike, squeezing balance sheets and constraining credit supply to American businesses when they need it most. With AXI and FXI, that gap can be bridged in a sound, transparent way. We take pride in having brought these tools to market in alignment with public-sector guidance and market needs.
Navigating a Complex Landscape
The journey thus far was by no means easy. We were not the only ones attempting to solve this important problem, and we have watched some other proposals emerge and later withdrawn. For instance, two other credit-sensitive rates struggled to meet international benchmark standards. In mid-2023, IOSCO – the global standard-setter for benchmarks – raised serious concerns about certain new US-dollar credit-sensitive rates. In short, other proposals were withdrawn or fell by the wayside under regulatory and market scrutiny. All the while, we kept our heads down and continued to progress AXI and FXI carefully and methodically. We did so not with fanfare, but with a conviction that if we could meet the highest standards of rigor, our work would speak for itself. Today, AXI and FXI stand alone in this space as the only credit spread supplements to SOFR that are aligned with IOSCO’s Principles for Financial Benchmarks. In fact, independent experts have confirmed that AXI and FXI have fully implemented the relevant IOSCO benchmark principles. After multiple years of hard work, this means a great deal to us – it signifies that our indices are built from a sound design, with strong data integrity, and maximum transparency. In an arena where credibility is paramount, being able to say that no other USD credit-sensitive benchmark in the category meet IOSCO’s standards is both a point of pride and a reminder of the deep responsibility we carry.
Policy Engagement and the Pilot Program
Encouragingly, our persistence is beginning to pay off in terms of recognition and momentum. After an initial period when authorities were (understandably) focused solely on cementing SOFR’s use, we now see a growing alignment among policymakers and regulators around the idea that a well-constructed credit supplement could have a place in the system. In recent months, engagement with and across regulatory agencies has progressed in a way that I could only have hoped for a few years ago. This past January, Rodgin Cohen of Sullivan & Cromwell convened an industry discussion with senior market participants to discuss AXI and FXI—an important milestone that included observation from officials at the SEC and the FDIC. That gathering marked a notable moment. Building on that momentum, in April we convened a broader discussion that brought together representatives from the Federal Reserve, the FDIC, the CFTC and the Financial Stability Oversight Council—all in the same (virtual) room. The very fact that officials from multiple agencies took the time to examine the technical design and policy rationale behind AXI and FXI signals a meaningful shift. It tells me there is real cross-agency interest in understanding and potentially utilizing these tools. Likewise, we have recently been in dialogue with policymakers on Capitol Hill and with White House staff at the Executive Branch. We proposed a Controlled Pilot Program for AXI and FXI, an idea that has now been formally raised with Congressional staff and has garnered constructive attention. The goal of this pilot would be to allow leading market participants to use AXI and FXI in real-world transactions on a limited basis under oversight, gathering data and feedback before any broader rollout. Relatedly, we have consulted on the standardized OTC swap conventions referencing AXI and FXI and received thoughtful feedback from a range of stakeholders, including major banks, hedge funds, infrastructure providers, and leading academics.
I have been heartened by the positive engagement on this front—there is a sense that regulators and legislators are increasingly “on the same page,” recognizing that exploring a credit-sensitive supplement to SOFR is not about turning back the clock to LIBOR, but about proactively future-proofing the U.S. financial system. In short, policy momentum is building. The conversations today are less about “should we?” and more about “how can we do this prudently?” This growing alignment across agencies and stakeholders gives me optimism that AXI and FXI will get their chance to prove themselves in the market, to the benefit of financial stability and credit availability.
Governance, Validation, and Credibility
Throughout this process, we have tried to remain true to our core values – integrity, transparency, and continuous improvement. I believe those values are a big reason we’ve come this far. We knew early on that credibility had to be earned, not claimed. That is why we partnered with well-established institutions from day one. We engaged Invesco Indexing as an independent recognized benchmark administrator to calculate, publish and administer AXI and FXI, bringing deep index governance expertise to the table. We also voluntarily subjected our work to external scrutiny and validation. Last year, IBM’s Promontory financial consulting unit undertook a thorough technical review of AXI and FXI’s design and methodology; they found that our benchmarks had implemented key IOSCO principles such as sound design and data sufficiency. Around the same time, PricewaterhouseCoopers (PwC) completed an independent assurance examination of Invesco Indexing’s governance and controls, underscoring that the index administrator met the highest standards of benchmark oversight. We want to hold ourselves to the highest global standards and to give regulators, banks, and the public confidence in what we’ve built. If there’s one thing the LIBOR saga taught everyone, it’s that trust in a benchmark is hard won and easily lost. We have tried to do the painstaking work, behind the scenes and over years, to build that trust brick by brick. And we know we must continue to earn it every day.
Trusted World-Class Advisors
Our efforts have been significantly elevated by the guidance and expertise of extraordinary advisors whose cumulative experience spans policy, financial markets, and benchmarks. Lawrence H. Summers, former U.S. Treasury Secretary and a preeminent economic thinker, formally joined as a Special Advisor in 2024, underscoring the broader economic and public policy importance of our work. Timothy G. Massad, former Chairman of the U.S. CFTC and a key architect of post-crisis financial stability policy, came onboard earlier this year. When Tim says our work to implement AXI and FXI is “critical to creating credible, market-based benchmarks for financial markets,” it is both an honor and a potent reminder of the standard we must uphold. We also deepen our market insight with ongoing contributions from Alex Roever, former Head of U.S. Interest Rate Strategy at J.P. Morgan. Alex authors occasional market insight notes—most recently “U.S. Credit Spreads Defy Rising Policy Uncertainty”—bringing real-time commentary that reinforces the relevance and urgency of our benchmark tools amid changing macroeconomic conditions. Robert Litterman, former head of risk management at Goldman Sachs and an authority on risk-based decision making, brings decades of experience at the intersection of financial markets and public policy, particularly in understanding systemic risks and aligning incentives for long-term resilience. We are also privileged to benefit from Alexander J. Matturri, Jr., the former CEO of S&P Dow Jones Indices—the firm behind the S&P 500™ index. With more than 35 years of experience launching and governing global benchmarks across asset classes, Alex advises on all matters related to benchmark administration, global index strategy, and distribution networks. The involvement of these deeply respected figures makes clear that we are not executing a side project, but building a foundational platform at the intersection of public policy, capital markets, and financial technology—one that is informed by unparalleled credibility and expertise.
A Societal Benefit
Independent academic research provides strong support for the inclusion of a credit-sensitive element in loan reference rates. In their 2025 Journal of Finance article, Cooperman, Duffie, Luck, Wang, and Yang demonstrate that under stressed market conditions, the use of risk-free reference rates such as SOFR can amplify systemic frictions by encouraging borrowers to draw more heavily on credit lines just as bank funding costs spike. This behavior creates a debt-overhang problem for banks, raising the expected cost of lending and dampening the ex-ante supply of credit—particularly through revolving facilities that are most vital during downturns. Historically, credit-sensitive benchmarks like LIBOR helped mitigate this issue by discouraging drawdowns when bank funding spreads were high. The authors show that transitioning away from such benchmarks without a suitable credit-sensitive element reduces credit line commitments, increases pricing, and generates measurable welfare losses. Their calibrated model finds that a hybrid reference rate with approximately 72% of LIBOR’s credit sensitivity would be welfare-maximizing—striking a balance between risk-free and credit-sensitive dynamics.
This research provides powerful validation for the design and purpose of AXI and FXI. As transparent, IOSCO-aligned, transaction-based indices that reflect prevailing credit conditions, AXI and FXI offer an economically grounded path to restore balance in loan pricing under SOFR. Their adoption stands to not only improve pricing efficiency and funding alignment but also support broader financial stability by reducing the likelihood of credit contraction during stress periods. Importantly, such benchmarks can help preserve the structural diversity of the U.S. banking system—particularly for regional and mid-sized institutions that are more exposed to funding mismatches—while lowering overall borrowing costs for American businesses. By reinstating market functionality that continues to exist in Europe and China, AXI and FXI also enhance the competitiveness of U.S. capital markets. The implementation of AXI and FXI is not only a technical innovation—it is a policy-aligned initiative that delivers clear societal benefits by helping ensure that credit continues to flow when it is needed most, stimulating economic growth and lowering the overall expected average cost of funds for credit line borrowers.
On the Shoulders of Giants
Insights like these from independent experts have been invaluable in validating our approach and communicating its merits to others. We’ve also engaged with trade associations, global index committees, and international counterparts to ensure that AXI and FXI benefit from diverse perspectives and can be thoughtfully adapted to other markets where appropriate. In doing so, we recognize that our work builds on a global foundation laid by groups such as the Official Sector Steering Group (OSSG) and the Market Participants Group (MPG) under the Financial Stability Board. Their years of thoughtful analysis and coordinated reform efforts shaped the post-LIBOR landscape we now operate in, and we view our progress on AXI and FXI as aligned with the principles and objectives they championed. All of this has been a team effort in the broadest sense—one that spans former public officials, academic researchers, regulatory experts, technology partners, and of course the team within SOFR Academy. If we have achieved anything so far, it is because we stood on the shoulders of giants—chief among them the OSSG and MPG—and collaborated across the public-private divide to carry their work forward.
Looking Ahead
I remain both humbled and excited about the road before us. Humbled—not because AXI and FXI must prove their usefulness to banks (that case has already been made and understood)—but because the responsibility now lies in introducing them thoughtfully, with maximum transparency and regulatory awareness. This is exactly what we’ve been doing: laying a careful and measured foundation so that these tools can be integrated into the financial system in a way that enhances resilience, safeguards trust, preserves banking diversity, and protects lending capacity. We envision a future in which a bank can extend a loan or line of credit using SOFR plus AXI and a non-bank lender can write a loan using SOFR plus FXI, confident that even in a crisis, the combined credit sensitive base will automatically adjust to accurately reflect credit conditions and thereby protect that financial institutions capacity to keep lending. This isn’t about introducing risk; it’s about managing risk better, in a transparent and rules-based way. And importantly, it keeps SOFR at the core of the system – AXI and FXI are additives to SOFR, not replacements, so banks and borrowers continue to benefit from SOFR’s reliability and deep liquidity. The past year has shown us that the idea of a credit spread supplement is no longer niche. It has moved into the mainstream conversation about ensuring financial stability and competitive fairness. After all, several of our international peers continue to use benchmark rates with credit sensitivity, and we believe the United States can incorporate the best of both worlds – the robustness of SOFR and the responsiveness of a credit spread – to maintain leadership in global finance. We at SOFR Academy are committed to working with market participants, infrastructure providers and policymakers as we carefully pilot and refine AXI and FXI. We proceed with a spirit of partnership and humility. We know that trust is earned slowly, and we are prepared to take this step by step, guided by data, feedback, and the public interest.
Global Expansion
The financial stability benefits of the AXI and FXI methodology should not be limited to U.S. dollar markets. AXI and FXI are the first expression of a broader vision—one in which SOFR Academy becomes the driver through which markets around the world can adopt credit-sensitive reference tools that meet global standards, tailored to local funding conditions. We are proud to share that CNAXI (Wind: CNAXI) and CNFXI (Wind: CNFXI)—credit spread benchmarks designed for the Chinese market—have officially launched in collaboration with our academic partners at Tsinghua University. Building on this momentum, in collaboration with academics from the University of Oxford, preliminary development is now underway for EURAXI, which will function as a credit spread supplement to €STR in Europe. In parallel, we are conducting feasibility studies for potential implementations in India, Brazil, South Korea, Japan, and Mexico, as we continue working to deliver IOSCO-aligned, credit-sensitive benchmarks tailored to local markets around the world. In shaping the US-dollar benchmarks implementation and this international rollout, we have looked to the Alternative Reference Rate Committee’s (ARRC) Paced Transition Plan as a successful model—one that emphasizes careful sequencing, industry engagement, and regulatory coordination—as we strive to support similarly smooth and responsible adoption paths abroad.
Closing Reflections
Few efforts sit so squarely—and so consequentially—at the intersection of public policy, capital markets, and technology. This work touches the core mechanics of credit transmission, financial stability, and global market infrastructure. Our combined regulatory experience, coupled with deep technical and academic grounding, has allowed us to move with both relative speed and precision. In a space where trust is paramount, we are one of the few firms positioned to deliver a credible, scalable solution.
We are also grateful for the support of our capital partners Alex Moore and Joe Lonsdale at 8VC, whose commitment to long-term, systemic level innovation has helped us pursue this mission with ambition and clarity. Their belief in the importance of rebuilding financial infrastructure in the United States from first principles continues to inspire and empower our work.
In closing, I want to thank all of you – our partners, advisors, early adopters, and even our skeptics – for being part of this journey. The strategic and public importance of this work has been our North Star from the beginning. This isn’t just about a new index or a technical fix; it’s about bolstering the foundations of our lending markets so that credit can continue to flow to American businesses and communities when they need it most. That mission has kept us going through the challenges, and it will continue to drive us as we move forward. I firmly believe that the best way to honor the trust placed in us by the official sector’s 2020 call to action, and by the market at large, is to deliver on the promise of AXI and FXI with integrity and transparency. We will remain stewards of these benchmarks in that spirit. Thank you for your engagement and curiosity about our work. I look forward to the next phases of this journey, and to proving, through results, the value that AXI and FXI can bring.
On a personal note, this initiative has taught me a great deal about resilience, adaptability, and patience. I’m deeply grateful for the hundreds of thoughtful conversations we’ve had over the years with market participants, regulators, and other engaged stakeholders—each one has incrementally shaped and strengthened the path forward.
Thank you for your continued support and engagement. Please don’t hesitate to reach out to me directly, or members of our team, if we can help in any way.
Enjoy the remainder of summer.
Sincerely,
Marcus A. Burnett
ABOUT THE AUTHOR
Marcus Burnett is the Chief Executive Officer of SOFR Academy ([email protected]).
This note is provided for informational purposes by SOFR Academy, Inc. (Sofr.org), a financial engineers firm. 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 any regulatory authority. Additional information about SOFR Academy, AXI and FXI can be found here.
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