SOFR Academy Welcomes New Paper by Researchers at Stanford University and the New York Fed

SOFR Academy Welcomes the Publication of a New Paper by Leading Researchers at the Stanford Graduate School of Business and the Federal Reserve Bank of New York

SOFR Academy, Inc., a digital education and market information provider, welcomed the publication of new research by leading researchers at the Stanford Graduate School of Business and the Federal Reserve Bank of New York on Bank Funding Risk, Reference Rates, and Credit Supply.

Samim Ghamami, senior advisor at SOFR Academy, senior researcher and adjunct professor of finance at New York University, and a senior researcher at UC Berkeley Center for Risk Management Research and the Department of Economics said, “The paper analyzes the impact of the transition from LIBOR to SOFR on the supply of revolving credit lines and the associated drawdown risk. The authors show that the transition leads to heavier drawdowns during times of distress, which could ultimately have welfare loss implications. The results reinforce the fact that a robust and well-designed credit-sensitive spread like AXI can mitigate the unintended adverse impact of LIBOR transition on the credit channel.”

The new research uses confidential bank-level balance sheet data from the Federal Reserve —designed to monitor the liquidity profile of large US Banks Holding Companies (BHC)— allowing the authors to break down the composition and dynamics of their funding costs in much more detail than was previously possible. The research shows that corporate credit lines are drawn more heavily when funding markets are more stressed, and that at the end of 2019 the largest twenty banks had amassed approximately $1.3 trillion of undrawn credit line commitments.

Marcus A. Burnett, CEO of SOFR Academy said, “The provision of credit across the United States economy, including in time of market stress, enables firms to weather disruptions in their business and helps maintain price stability. We welcome this new and independent research which confirms the asset – liability mismatch problem that the collection of large US banks are concerned about. Importantly, the paper shows that a credit spread supplement to SOFR reduces the cost for borrowers of obtaining credit lines from banks.”

“The results reinforce the fact that a robust and well-designed credit-sensitive spread like AXI can mitigate the unintended adverse impact of LIBOR transition on the credit channel ”– Samim Ghamami, senior advisor at SOFR Academy

“Bank Funding Risk, Reference Rates, and Credit Supply” by Harry Cooperman, and Darrell J. Duffie, Stephan Luck, Zachry Wang, and Yilin (David) Yang, is accessible via the New York Fed’s website here and a PDF version is available for download here. SOFR Academy, Inc. has had no involvement in the development of this research.


SOFR Academy supports SOFR, and near risk-free rates. Over time, we also support robustly defined and representative across-the-curve credit spread supplements such as AXI and FXI which can be used in conjunction with risk-free rates. SOFR is published by the Federal Reserve Bank of New York (The New York Fed) and is used subject to The New York Fed Terms of Use. The New York Fed at has no liability for your use of the data. AXI is not associated with, or endorsed or sponsored by, The New York Fed, or the Federal Reserve System. Darrell J. Duffie is The Adams Distinguished Professor of Management and Professor of Finance at Stanford Graduate School of Business, is a co-author of the proposal for AXI, but has no related compensation or other affiliation with its commercialization. In 2014 Professor Duffie chaired a Market Participants Group at the Financial Stability Board on Reforming Major Interest Rate Benchmarks. All authors of the academic paper have declared that (s)he has no relevant or material financial interests that relate to the research described in the paper. The views expressed in the paper are those of the authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System. Any errors or omissions in the paper are the responsibility of the author(s). SOFR Academy, Inc. has had no involvement whatsoever in research published by the New York Fed or Stanford University. This post does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. Invesco Indexing LLC is an indirect, wholly owned subsidiary of Invesco Ltd. The group is legally, technologically and physically separate from other business units of Invesco, including the various global investment centers. Any prospective user of AXI or FXI that would intend to also use CME Term SOFR in developing an interest rate for Cash Market Financial Products of OTC Derivative Products would require a license with CME Group for use of CME Term SOFR. SOFR Academy’s work is separate from but supportive of the Alternative Reference Rates Committee (ARRC).

About SOFR Academy

SOFR Academy, Inc. provides financial education and market information to empower corporations, financial institutions, governments, and individuals to make better decisions. The Firm’s panel of advisors includes academics from the Harvard University, the University of Oxford, London Business School, the University of California Berkeley, New York University and Tsinghua University, as well as experienced financial market practitioners. SOFR Academy is a member of the Asia Pacific Loan Market Association (APLMA), American Economic Association (AEA), the Loan Syndications and Trading Association (LSTA), the International Swaps and Derivatives Association (ISDA), the Bankers Association for Finance and Trade (BAFT) which is a wholly owned subsidiary of the American Bankers Association (ABA), the U.S. Chamber of Commerce (USCC), and the Bretton Woods Committee (BWC). For more information please visit