When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009 / Marcin Kacperczyk, Philipp Schnabl.

Format:

Book

Author/Creator:

Kacperczyk, Marcin.

Contributor:

National Bureau of Economic Research.

Schnabl, Philipp.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15538.

NBER working paper series no. w15538

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

When Safe Proved Risky

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

Commercial paper is one of the largest money market instruments and has long been viewed as a safe haven for investors seeking low risk. However, during the financial crisis of 2007-2009, the commercial paper market experienced twice the modern-day equivalent of a bank run with investors unwilling to refinance maturing commercial paper. We analyze the supply of and demand for commercial paper and show that, in contrast to previous turbulent episodes, the crisis centered on commercial paper issued by, or guaranteed by, financial institutions. We describe the importance of Federal Reserve's interventions in restoring stability of the market. Finally, we propose three possible explanations for the sharp decline of the commercial paper market: substitution to alternative sources of financing by commercial paper issuers, adverse selection, and institutional constraints among money market funds.

Notes:

Print version record

November 2009.