How the LIBOR Transition Affects the Supply of Revolving Credit

Duffie, Darrell; Harry, Cooperman; Kang-Landsberg, Alena; Luck, Stephan; Wang, Zachry; Yang, Yilin

Discussion Paper

How the LIBOR Transition Affects the Supply of Revolving Credit

Abstract: In the United States, most commercial and industrial (C&I) lending takes the form of revolving lines of credit, known as revolvers or credit lines. For decades, like other U.S. C&I loans, credit lines were typically indexed to the London Interbank Offered Rate (LIBOR). However, since 2022, the U.S. and other developed-market economies have transitioned from credit-sensitive reference rates such as LIBOR to new risk-free rates, including the Secured Overnight Financing Rate (SOFR). This post, based on a recent New York Fed Staff Report, explores how the provision of revolving credit is likely to change as a result of the transition to a new reference rate.

Keywords: bank funding risk; reference rates; LIBOR; SOFR; Secured Overnight Financing Rate (SOFR); credit supply; regulation;

JEL Classification: G2;