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The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market

55 Pages Posted: 22 Mar 2009 Last revised: 12 Apr 2012

Daniel M. Covitz

Federal Reserve Board - Division of Research & Statistics

Nellie Liang

Federal Reserve Board

Gustavo Suarez

Board of Governors of the Federal Reserve System

Date Written: April 5, 2012

Abstract

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.

Keywords: Commercial paper, asset-backed commercial paper, bank runs, financial crisis

JEL Classification: G01, G10, G21

Suggested Citation

Covitz, Daniel M. and Liang, Nellie and Suarez, Gustavo, The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market (April 5, 2012). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1364576 or http://dx.doi.org/10.2139/ssrn.1364576

Daniel M. Covitz (Contact Author)

Federal Reserve Board - Division of Research & Statistics ( email )

20th and C Streets, NW
Mailstop 153
Washington, DC 20551
United States
202-452-5267 (Phone)
202-452-5295 (Fax)

Nellie Liang

Federal Reserve Board ( email )

Capital Markets Section
20th & C. St., N.W.
Washington, DC 20551
United States
202-452-2918 (Phone)
202-452-3819 (Fax)

Gustavo Suarez

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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