NY Fed paper warns of systemic risks from SOFR credit lines

Stress tests need to account for credit facilities being “drawn to the limit”, says Stanford’s Duffie


Regulatory stress tests may need to be updated to account for the acute drawdown risks faced by banks that offer committed credit facilities linked to the secured overnight financing rate, or SOFR, according to a recent staff paper from the Federal Reserve Bank of New York.

The new study, led by Stanford University’s Darrell Duffie and researchers at the New York Fed, concludes that most SOFR credit lines would be “drawn to the limit” in periods of market or economic stress, when the risk-free

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