Banks Construct New Tools to Shift Short-Term Loaning

Financiers are beginning to trade complex derivatives tied to the Federal Reserve’s preferred replacement for the London interbank used rate, an indication the monetary industry is coalescing around a new standard for short-term interest rates.

Banks and exchanges are expanding a market for secondary monetary products connected to this rate– the protected overnight funding rate, or SOFR– alleviating concerns that loan providers and other financial institutions remain underprepared for the shift.

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