term rates from SOFR futures prices. By contrast, Libor has rates
ranging from overnight to one year.
The Basel, Switzerland-based Bank for International
Settlements, which serves as the bank for central banks, said in
March that a one-size-fits-all alternative to Libor may be neither
feasible nor desirable. And that’s what Sandor is betting on.
“Multiple benchmarks and choice, as an economist, is good for
the market,” he says. “What is this love affair with a single index?”
He’s going big by aiming small. There’s about $18 trillion in
the U.S. banking system, according to Federal Deposit Insurance
Corp. data. Roughly half of that is stashed at the largest banks.
That leaves $9 trillion or so in the hands of thousands of smallerAdministration, the current operator of Libor, has evolved the
benchmark’s methodology so that submissions are based on
transactions to the greatest extent possible.
It’s unlikely that any of these will ever match Libor’s
predominance. Although the Alternative Reference Rates
Committee (ARRC), a collection of market participants and reg-
ulators engineering the transition in the U.S., is pushing SOFR as
the heir, many are wary of adopting it. Libor has long been used
as a barometer of stress in credit markets, but SOFR wasn’t
designed for that. It only tracks overnight repurchase agreements
and lacks a forward-looking curve with tenors extending beyond
a day, though Fed staffers have issued a paper about inferring
Sandor<GO> INSIDE THE TERMINAL 33