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We estimate the shadow cost of capital requirements using data on a costly loophole that allowed banks to relax these constraints. This loophole--liquidity guarantees to asset-backed commercial paper conduits--was exploited by the largest banks before the crisis of 2008. We show theoretically that a bank's use of the loophole reveals its private compliance cost, which takes into account both the costs of issuing equity and the effectiveness of capital regulation. We find that increasing capital requirements would impose a modest cost--$220 million a year for all participating banks combined per one-percentage-point increase, and $14 million on average. [ABSTRACT FROM AUTHOR]

Money is defined as any asset that is acceptable as a medium of exchange in payment for goods and services. Finance is a part of money and all the activities are related to obtain it and to use it effectively. Financial market is an area where the sources of finance are available in two format i.e. Long term & Short term. By understanding to these subjects and financial market, the further emphasis can be laid on to its sub-part i.e. money market (Short term). EVERY country with a monetary system of its own does have some kind of market in which dealers in short-term credit can buy and sell. It is a market of short-term funds with maturity ranging from overnight to one year and includes financial instruments that are deemed to be close substitutes of money. One of the major components or instrument of Indian Money Market is Commercial Papers. This paper examines the trend and growth of Commercial papers in Indian economy over a period of 10 years. It emphasize on how the share of this particular instrument has grown with respect to the changes in interest rates over the same period and to analyse the reasons behind such changes. [ABSTRACT FROM AUTHOR]

Purpose The purpose of this paper is to examine programs designed to support the commercial paper market during the financial crisis.Design/methodology/approach The paper analyzes the participants in the two programs to determine why domestic financial institutions chose one program over the other.Findings Domestic financial institutions chose the Temporary Liquidity Guarantee Program over the Commercial Paper Funding Facility (CPFF) while foreign financial institutions chose the CPFF.Practical implications The analysis is intended to support future policy debate on how to address a liquidity crisis in the money markets.Originality/value The authors are the first paper to examine the participants in these two programs. The value is the policy implications of this study. [ABSTRACT FROM AUTHOR]

This article investigates empirically the comovements of the conditional mean and volatility of stock returns. It extends the results in the literature by demonstrating the role of the commercial paper-Treasury yield spread in predicting time variation in volatility. The conditional mean and volatility exhibit an asymmetric relation, which contrasts with the contemporaneous relation that has been tested previously. The volatility leads the expected return, and this time series relation is documented using offset correlations, short-horizon contemporaneous correlations, and a vector autoregression. These results bring into question the value of modeling expected returns as a constant function of conditional volatility. [ABSTRACT FROM AUTHOR]

Diamond (1991) argues that a firm's reputation determines whether it borrows directly or through an intermediary. We test the Diamond model by examining the quantity response of commercial paper issued by bank holding companies to a rating downgrade. From 1986 to 1991, cumulative abnormal declines averaged 6.69 percent in the first two weeks after the downgrade and 11.05 percent in the subsequent 12 weeks. In contrast to commercial paper issued by bank holding companies, large CDs issued by affiliated banks did not change significantly in the period around a downgrade, suggesting that deposit insurance may have removed market discipline from the CD market. [ABSTRACT FROM AUTHOR]

A commercial loan sale or secondary loan participation is a contract under which a bank sells the cash stream from a loan to a third party, usually without recourse. In accordance with accepted accounting procedures, this no-recourse contract allows removal of the underlying loan from the balance sheet of the bank, so that the funding of the loan is not subject to capital or reserve requirements. Since commercial banks are thought to specialize in the origination of nonmarketable claims on borrowing firms, the apparent ability of banks to sell these assets seems paradoxical. The paradox could be explained if loan sales contracts contained implicit guarantees in the form of options by loan buyers to sell the loans back to the bank if the underlying borrower performs worse than anticipated. If such guarantees exist, then loans that are sold represent contingent liabilities, and a rationale for increasing capital requirements may exist. As an indirect test of the existence of this guarantee, we investigate whether loan sales and commercial paper prices contain a risk premium for the default of the selling bank. The empirical evidence supports the hypothesis of implicit guarantees. [ABSTRACT FROM AUTHOR]

The article develops supply and demand functions for the commercial paper market. Between 1965 and 1968 the value of short-term debt issued by corporations more than tripled. The author estimates equations for supply and demand using quarterly data for the period 1954-1968. Results for several different industries are presented and discussed. Although the model worked will within the sample time frame, it performed less well for the two subsequent quarters, owing to structural changes in the market.

The years immediately preceding the financial crisis of 2007 witnessed an explosive growth in the supplies both of the long-term securities issued by the shadow banking entities, the asset-backed securities (ABSs) and collateralized debt obligations (CDOs), and of the short-term securities issued by these entities, notably asset-backed commercial paper (ABCP). Although there is now some acknowledgment that the search for yield was the major driver of ABS and CDO growth in the United States, the same is not true of the U.S. ABCP market where other factors such as regulatory arbitrage on the part of banks or the safety and liquidity concerns of institutional investors are seen as having been the more important growth driving force. This article argues that the search for yield did play a crucial role in U.S. ABCP growth between 2004 and 2007. To back up this argument, the article points to four variables that were closely correlated with this growth: the federal funds rate; U.S. money market mutual funds asset holdings; the change in the geographical breakdown of the institutions supplying ABCP; and, finally, the change in the program breakdown of the ABCP market. [ABSTRACT FROM AUTHOR]

Before the global financial crisis, the assistance of the lender of last resort was thought to be limited to commercial banks. During the crisis, however, the Federal Reserve created a number of facilities to support brokers and dealers, money market mutual funds, the commercial paper market, the mortgage-backed securities market, the triparty repo market, and so on. In this paper, we argue that the elimination of specialized banking through the eventual repeal of the Glass-Steagall Act (GSA) has played an important role in the leakage of the public subsidy intended for commercial banks to nonbank financial institutions. In a specialized financial system, which the GSA had helped to create, the use of the lender-of-last-resort safety net could be more comfortably limited to commercial banks. However, the elimination of GSA restrictions on bank-permissible activities has contributed to the rise of a financial system where the lines between regulated and protected banks and the so-called shadow banking system have become blurred. The existence of shadow banking, which is directly or indirectly guaranteed by banks, has made it practically impossible to confine the safety to the regulated banking system. In this context, reforming the lender-of-last-resort institution requires fundamental changes within the financial system itself. [ABSTRACT FROM AUTHOR]

We analyze why firms use nonintermediated short-term debt by studying the commercial paper (CP) market. Using a comprehensive database of CP issuers and issuance activity, we show that firms use CP to provide start-up financing for capital investment. Firms' CP issuance is driven by a desire to minimize transaction costs associated with raising capital for new investment. We show that firms with high rollover risk are less likely to enter the CP market, borrow less CP, and borrow more from bank credit lines. Further, CP is often refinanced with long-term bond issuance to reduce rollover risk. [ABSTRACT FROM AUTHOR]

The study examines the impact of the partial U.S. government shutdown of October 2013 on the yields of Treasury bills. The authors find that there was a significant impact on the yields of four-week Treasury bills as compared with high-quality commercial paper. They do not find a similar impact on the yields of Treasury bills of three-month maturity. The analysis is based on the results of t-tests, regressions, and nonparametric tests, and the results are robust across the methodologies. The study has important implications for academics, market participants, and lawmakers. [ABSTRACT FROM AUTHOR]

The article discusses the covariance patterns of the returns on the commodity and equity markets highlighting the association between the equity market and the commercial paper market.

This panel was intended to provide an introductory overview of asset-backed commercial paper (ABCP) programs and structures, as well as information regarding recent developments in the market for this type of securitization. Traditional ABCP programs provide committed financing to originators that is collateralized by receivables, loans, leases, securities, and repurchase agreements. Money market funds are the most important investors in ABCP. Structured investment vehicles (SIVs), a structure no longer welcome, drove outstandings to a peak in 1977; since then, the market has contracted to traditional ABCP programs. Issuances by multi-seller ABCP conduits make the largest percentage of total market outstandings today, with portfolios concentrated with core consumer and customer assets. ABCP is affected by many regulatory issues, including rules pertaining to consolidation of ABCP conduits under GAAP, permissible money market fund investments under the Investment Company Act of 1940, the liquidity coverage ratio under Basel III, risk retention rules, and the Volcker Rule. [ABSTRACT FROM AUTHOR]

On December 10, 2013, the Federal financial agencies issued the joint final regulation implementing Section 619 of the Dodd--Frank Act, commonly known as the "Volcker Rule." This article addresses the impact of the final regulation on securitization activities and therefore focuses on the prohibition on covered funds activities and certain of the exceptions thereto. The final regulation provides for 14 separate exclusions from the definition of covered funds, including the loan securitization, qualifying asset-backed commercial paper (ABCP), qualifying covered bond, and wholly-owned subsidiary exclusions. Although securitization transactions generally do not utilize entities that would be regarded as private equity funds or hedge funds and the statutory text of the Volcker Rule expressly required that the final regulation not prohibit the securitization of loans, the final regulation will impact certain securitizations in a material way due to the breadth of the definition of covered funds. [ABSTRACT FROM AUTHOR]

As required by the Dodd-Frank Act, the Federal Reserve Board, the Securities and Exchange Commission and other federal regulators are moving forward with plans to require risk retention in most securitizations and are likely to approve final risk retention rules in early 2014. Although in developing the rules the regulators have endeavored to take into account the unique features of different securitization markets, the retention rules that those regulators have proposed for asset-backed commercial paper (ABCP) conduits fail to recognize the substantial differences that exist between ABCP programs and other securitization structures. The proposed rules would impose operating restrictions and disclosure obligations on ABCP conduits and their sponsors that could have a significant adverse impact on the ABCP market. In particular, those rules would require conduit sponsors to retain horizontal or vertical credit risk in their conduits or to comply with a narrow safe harbor that would (among other issues) limit the categories of assets that the conduits could finance. This article describes the risk retention rules that the regulators have proposed for ABCP conduits and discusses the compliance options available to conduit sponsors and the practical difficulties that each option would create. [ABSTRACT FROM AUTHOR]

This paper documents 'runs' on asset-backed commercial paper (ABCP) programs in 2007. We find that one-third of programs experienced a 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. These findings are consistent with the asymmetric information framework used to explain banking panics, have implications for commercial paper investors' degree of risk intolerance, and inform empirical predictions of recent papers on dynamic coordination failures. [ABSTRACT FROM AUTHOR]

The development of international trade has had as a consequence the expansion of possibilities of paying debt arising from the contractual relations and by exploiting the function of a payment instrument of debt securities. In this context it can be affirmed that the payment instruments meet the monetary functions, meaning that the creditor of the payment in a legal relation may be sated by using such an inscription, or he could deliver himself such an instrument to the payment debtor, establishing to him the obligation to pay at maturity the amount of the contract. [ABSTRACT FROM AUTHOR]

The article discusses the financial regulatory system in America and the reported instability of the market for fixed-principal, short-term borrowings (money-claims) as of October 2012. Other topics include public-private partnerships (PPPs), risk-based fees, and the U.S. Federal Deposit Insurance Corporation (FDIC). The American money-claim market is examined, along with repurchase agreements, the asset-backed commercial paper market, and money market mutual funds (MMMFs).

The aim of the paper is, first of all, to analyze various sources of short-term financing, secondly, to explore procedures to convert different terms and conditions for various types of short-term financing sources into effective interest rates after tax and, thirdly, to establish the relationship between a set of independent variables in order to produce an effective interest rate after tax as a dependent variable. To determine what sources of short-term financing to employ, it is important to take into consideration the cost of all available sources expressed as a comparable effective interest rate after tax and choose the source in accordance with the effective interest rate after tax because that represents the real cost of financing. Finally, the source that has the lowest effective interest rate after tax should be chosen. The results of the work will provide equations for calculating effective interest rates after tax for different short-term financing sources e.g: line of credit, simple interest bank loans, bank loans with discount interest, bank loans with compensating balances, bank loans with discount interest and compensating balances, secured bank loans, instalment loans, factoring accounts receivable and commercial papers. On the basis of the above, it can be determined that an effective interest rate after tax can be accurately calculated using these equations. The results lead to the conclusion that consideration and comparison of all available sources regarding costs are easier as calculation of an effective interest rate is simplified by using the given equations. [ABSTRACT FROM AUTHOR]

Following the 2007 global financial crisis, markets for commercial paper (CP), especially asset-backed CP (ABCP),fell out of favour with investors over concerns about credit and liquidity risks. Though investor interest has returned to a limited extent, CP growth over the next few years is likely to remain constrained because of stricter regulation, continued economic weakness in western economies, and credit concerns over banks and European sovereign states. Corporate issuers, and service providers, share their experiences and views of CP markets. [ABSTRACT FROM AUTHOR]

The two main explanations for the crisis in the commercial paper (CP) market are credit concerns and liquidity issues. The CP market is not homogeneous in terms of credit quality, maturities and types of issues. We find that lower credit-quality CP suffered more during the crisis. Additionally, we find little evidence that Federal Reserve (Fed) liquidity facilities reduced the impact of the crisis, but that when the Fed became a lender in the CP market, the crisis pressures were dramatically reduced. We conclude that the crisis in the money markets is related more to increases in credit risk. Liquidity is a secondary issue. [ABSTRACT FROM AUTHOR]

The article presents a study which focuses on the Commercial Paper Funding Facility (CPFF) of the U.S. Federal Reserve System, as well as the economic role of the commercial paper market. It says that the commercial paper market is being used by commercial banks and financial institutions to acquire short-term external funding. It also mentions that the CPFF was designed to provide additional source of funding to institutions in order to minimize the reinvestment risk.

Asset-backed commercial paper (ABCP) programs fully supported by bank sponsors have been used to finance a myriad of asset classes. In recent years, offerings of many different types of partially supported structured short-term notes also have come to be considered ABCP. The rapidly changing regulatory landscape for asset-backed securities, including ABCP, poses a threat to even the most traditional multiseller ABCP conduits. This article explains the most significant issues Facing the traditional ABCP market, including accounting consolidation, enhanced capital requirements, removal of rating requirements from regulations, proposed liquidity coverage requirements, FDIC assessments, changes in money market fund regulation, proposed changes in disclosure requirements (Regulation AB II and repurchase activity), disclosure of due diligence reports, the Volcker Rule, changes to the Federal Reserve Act, risk retention rules, conflicts of interest, investment adviser registration, and other regulatory changes. [ABSTRACT FROM AUTHOR]

Commercial paper is a short-term debt instrument issued by large corporations. The commercial paper market has long been viewed as a bastion of high liquidity and low risk. But twice during the financial crisis of 2007–2009, the commercial paper market nearly dried up and ceased being perceived as a safe haven. Major interventions by the Federal Reserve, including large outright purchases of commercial paper, were eventually used to support both issuers of and investors in commercial paper. We will offer an analysis of the commercial paper market during the financial crisis. First, we describe the institutional background of the commercial paper market. Second, we analyze the supply and demand sides of the market. Third, we examine the most important developments during the crisis of 2007–2009. Last, we discuss three explanations of the decline in the commercial paper market: substitution to alternative sources of financing by commercial paper issuers, adverse selection, and institutional constraints among money market funds. [ABSTRACT FROM AUTHOR]

The ongoing credit crunch has paralyzed the international debt capital markets for quite some time, but its tremors could be felt in the short-term debt capital markets as early as August 2007. Recognizing that the health and vitality of the short-term markets is a fundamental cornerstone of liquidity in the debt capital markets generally, both the U.S. and U.K. governments have taken unprecedented steps to help bolster the commercial paper markets. The U.S. government has, through the Federal Reserve and the Department of the Treasury, implemented four short-term market support programs, namely, the ABCP Money Market Mutual Fund Liquidity Facility, the Treasury Temporary Guarantee Program, the Commercial Paper Funding Facility, and the Money Market Investor Funding Facility. The U.K. government promptly followed suit, establishing the Commercial Paper Facility and the Secured Commercial Paper Facility, both administered by the Bank of England. While these efforts have had limited success in "reviving" the short-term markets, some of them have certainly been helpful in preventing a meltdown of the debt capital markets, which has continued to be a very real and grave risk. [ABSTRACT FROM AUTHOR]

Since its inception in the early nineteenth century, the U.S. commercial paper market has grown to become a key source of short-term funding for major businesses, with issuance averaging over $100 billion per day. In the fall of 2008, the commercial paper market achieved national prominence when increasing market stress caused some to fear that, given its size and importance, the market's failure would sharply worsen the recession. The Department of the Treasury and Federal Reserve enacted programs targeted at providing credit and liquidity to restore investor confidence. The authors review the history of the commercial paper market, describe its structure and key relationships to money market mutual funds, and present a detailed discussion of the crisis in the market, including the resulting Federal Reserve programs. [ABSTRACT FROM AUTHOR]

We survey 54 corporate Commercial Paper (CP) issuers from 11 European countries in order to analyse the perceived benefits and obstacles of internet platforms for issuing CP in Europe. The lack of a joint initiative of large CP issuers, close relations to banks and the fact that liquidity is scattered over separate domestic CP markets are felt to be the main obstacles to the establishment of a European CP platform. Responses reveal consensus that an internet platform would increase flexibility but show divergent opinions about the effect on other criteria. Corporate issuers expect their own issuance activity as well as the overall market volume to increase within the next 5 years. The establishment of an internet-based issuance platform is considered to be likely. [ABSTRACT FROM AUTHOR]

The recent market freeze in third-party asset-backed commercial paper in Canada has given rise to a restructuring proceeding of unprecedented size and complexity in Canada. It has led the Courts to refine and perhaps define the interpretative principles underpinning the determination of the scope of under-inclusive commercial legislation. This paper is a commentary on this unusual proceeding and the judicial analysis employed in the proceeding. Copyright © 2008 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

This paper brings historical evidence to bear on the stylized fact that the yield curve predicts future growth. The spread between corporate bonds and commercial paper reliably predicts future growth over the period 1875-1997. This predictability varies over time, however, and has been strongest in the post-World War II period. [ABSTRACT FROM AUTHOR]

The author reflects on the challenges faced by corporate treasurers, particularly the agency problem. He remarked that agency problem arises when the company finds difficulty in getting someone hired, such as when an employee does not do what he is expected from him. He commented that agency problem is obviously the root cause of market disruption. Meanwhile, the author outlined some lessons which corporate treasurers learn from business models that sells commercial paper directly to investors.