Small Banks Tell Fed Its Libor Replacement Doesn’t Work for Them

Officials from 10 mid-sized American banks said U.S. regulators’ preferred index for replacing the maligned Libor benchmark doesn’t work for them.

The Secured Overnight Financing Rate, or SOFR, is appropriate for large banks as a Libor substitute because they have stronger ties to the market for repurchase agreements, according to the letter sent by 10 banks to Federal Reserve Vice Chairman Randal Quarles, Comptroller of the Currency Joseph Otting and Federal Deposit Insurance Corp. Chair Jelena McWilliams. But it’s ill-suited for smaller ones, they said.

The bankers who signed the letter object “to the use of SOFR as ...