The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market
Daniel M. Covitz
Federal Reserve Board - Division of Research & Statistics
Federal Reserve Board
Board of Governors of the Federal Reserve System
April 5, 2012
Journal of Finance, Forthcoming
This paper documents “runs” on asset-backed commercial paper (ABCP) programs using a novel dataset of all transactions in the U.S. market during its severe contraction in 2007. We find that one-third of programs were run within weeks of the onset of the ABCP crisis and that runs, as well as yields and maturities for new issues, were related to program-level and macro-financial risks. The findings are consistent with the asymmetric information framework used to explain banking panics, have implications for the degree of risk-intolerance of commercial paper investors, and inform upon empirical predictions of recent papers on dynamic coordination failures.
Number of Pages in PDF File: 55
Keywords: Commercial paper, asset-backed commercial paper, bank runs, financial crisis
JEL Classification: G01, G10, G21
Date posted: March 22, 2009 ; Last revised: April 12, 2012
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