Credit-Sensitive Rates and Market Data for Tracking Bank Funding Stress

Summary

The document considers what Treasury desks can monitor as a successor to the LIBOR–OIS spread for assessing stress in interbank lending. It distinguishes SOFR, a Treasury-collateralized benchmark with little direct bank credit exposure, from unsecured lending between banks. The accepted answer suggests continuing to observe relevant legacy or reformed interbank benchmarks where available, including the Euribor–€STR spread, and considering newer U.S. credit-sensitive reference rates such as BSBY and Ameribor.

It also points to bank commercial-paper and certificate-of-deposit prices as sources of funding information, noting that these instruments feed into the cited credit-sensitive indices. The document offers a menu of possible indicators rather than a tested replacement metric, and gives no comparison of their predictive performance, liquidity, or behavior during stress. Benchmark availability and status are time-sensitive, so the examples should be checked against current market conventions before use.

Key ideas

• SOFR’s collateralization means it does not directly measure unsecured bank credit risk.
• Spreads between interbank benchmarks and risk-free or overnight benchmarks can help indicate funding stress.
• The answer names Euribor–€STR, BSBY, and Ameribor as possible credit-sensitive rate references.
• Commercial-paper and certificate-of-deposit prices can provide information about bank funding conditions.
• The document does not test or rank the suggested indicators.

Tags

# What can be used to replace the Libor - OIS indicator in assessing fear in money markets?


# What can be used to replace the Libor - OIS indicator in assessing fear in money markets?












Libor is dead and used to be uncollateralised. Libor-OIS was a useful indicator to measure the spread between risk free (central bank e.g. Fed funds) rate and the interbank lending rate. For example in 2008 the spread shot up reflecting fear in the money markets sector.

Now SOFR has replaced LIBOR and SOFR is collateralised with US treasuries. Therefore there is virtually no credit risk in SOFR, it's a collateralized rate. If I lend 100m for 6 months to another bank though, it's not collateralized.

What can Treasury desk use nowadays to assess the fear factor in interbank lending, other than CDS baskets?

Thanks

## Answer by dm63 (score 6, accepted)

https://quant.stackexchange.com/a/69946

At this point most Libors are dead but not all. USD Libor goes away in June 23 so you have some time there. Also, Euribor lives on in a reformed state so you can continue to look at the Euribor- Ester spread. In addition, several credit sensitive indices have been started recently in the US. For example , BSBY and Ameribor are now published and are meant to provide an alternative to SOFR. Other sources of information you could look at include bank issued commercial paper and certificate of deposit prices. Indeed these are included in the calculation of the two indices I mentioned.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.