In a recent opinion piece published in Barron’s, former House Financial Services Committee Chairman Barney Frank (D-MA) and former U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo wrote about the necessity of transitioning away from LIBOR. Within the article, they warn about the dangers of continuing to use LIBOR because it is a benchmark “that is no longer derived from a widely traded market.” Mr. Frank and Mr. Giancarlo expressed that a market’s durability and resistance to manipulation rely on market depth and breadth of participation. While the authors praise SOFR, the ARRC’s preferred LIBOR replacement, for being built around a deeply liquid market, they go on to note that one area SOFR needs to improve upon is its “breadth of participation.” They highlight that currently, SOFR reflects large banks’ secured funding costs and is reliant on four large marginal lenders in the repo market, warning that one narrowly used benchmark should not be replaced with another narrow market rate.

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