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When a small group of US bankers sat down a few years ago with Steve Mnuchin, they had a simple message for president Donald Trump’s Treasury secretary. A push was emerging for US lenders to adopt a new risk-free benchmark, the Secured Overnight Financing Rate (Sofr), in place of the London Interbank Offered Rate (Libor), which was slated to be scrapped, and the bankers believed this was a mistake.
Sofr, a measure of the cost of overnight borrowing against Treasuries in the repo market, would not reflect lenders’ real funding costs, the bankers pointed out. Borrowing would only get more expensive as a result, which would hurt the US economy. This was not lobbying by the great and the good of Wall Street: these were regional and community banks, the lifeblood of local economies across the nation.
Years later, the industry is facing a deadline that it has been working towards ever since.
