Libor successor rate may heighten bank risks

Changing times: An artist sketches and writes quotes during the British Chambers of Commerce annual conference in London. It comes just as the tainted London Interbank Offered Rate is to be replaced by the Secured Overnight Funding Rate. — Bloomberg

NEW YORK: The effective demise of the tainted London Interbank Offered Rate (Libor) next month and the switch to the risk-free rate have renewed concerns about the potential negative impact of the new measure on bank balance sheets in times of financial stress.

The transition to the Secured Overnight Funding Rate (SOFR) has been well-telegraphed for years, and US banks are mostly prepared for the new rate regime.