Basel III F: Callable Commercial Paper

Yale Program on Financial Stability Case Study 2014-1F-V1

8 Pages Posted: 14 Mar 2015

See all articles by Christian McNamara

Christian McNamara

Yale University - Yale Program on Financial Stability

Rosalind L. Bennett

FDIC, Division of Insurance and Research

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: November 1, 2014

Abstract

One of the Basel Committee on Banking Supervision’s responses to the global financial crisis of 2007-2009 was to introduce the Liquidity Coverage Ratio (LCR), a short-term measure that evaluates whether a bank has enough liquidity to meet expected cash outflows during a 30-day stress scenario. One area in which this incentive has already resulted in changed practices is in the market for commercial paper. Banks often provide backup liquidity facilities to the issuers of commercial paper that the issuers can draw upon to repay a maturing issue of commercial paper if they are unable to sell a new issue to do so. To avoid such draws occurring within the 30-day LCR window, banks have developed commercial paper that features a call provision enabling issuers to redeem the commercial paper prior to the start of the window. This case considers the implications of the emergence of callable commercial paper and whether this development introduces additional risk into the financial system.

Keywords: Systemic Risk, Financial Crises, Financial Regulation

JEL Classification: G01, G28

Suggested Citation

McNamara, Christian and Bennett, Rosalind L. and Metrick, Andrew, Basel III F: Callable Commercial Paper (November 1, 2014). Yale Program on Financial Stability Case Study 2014-1F-V1. Available at SSRN: https://ssrn.com/abstract=2576923 or http://dx.doi.org/10.2139/ssrn.2576923

Christian McNamara

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Rosalind L. Bennett

FDIC, Division of Insurance and Research ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-7160 (Phone)

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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