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The commercial paper market, the Fed, and the 2007-2009 financial crisis

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  • Richard G. Anderson
  • Charles S. Gascon

Abstract

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.

Suggested Citation

  • Richard G. Anderson & Charles S. Gascon, 2009. "The commercial paper market, the Fed, and the 2007-2009 financial crisis," Review, Federal Reserve Bank of St. Louis, vol. 91(Nov), pages 589-612.
  • Handle: RePEc:fip:fedlrv:y:2009:i:nov:p:589-612:n:v.91no.6
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Marius Cristian Acatrinei, 2020. "Financial stability indicator for non-banking markets," Journal of Financial Studies, Institute of Financial Studies, vol. 9(5), pages 3-9, November.
    2. Pablo Kurlat, 2018. "Liquidity as Social Expertise," Journal of Finance, American Finance Association, vol. 73(2), pages 619-656, April.
    3. Wei Cui & Sören Radde, 2014. "Search-Based Endogenous Illiquidity and the Macroeconomy," Discussion Papers of DIW Berlin 1367, DIW Berlin, German Institute for Economic Research.
    4. Cui, Wei, 2016. "Monetary–fiscal interactions with endogenous liquidity frictions," European Economic Review, Elsevier, vol. 87(C), pages 1-25.
    5. Scott Brave & Hesna Genay, 2011. "Federal Reserve policies and financial market conditions during the crisis," Proceedings 1129, Federal Reserve Bank of Chicago.
    6. Kyle D. Allen & Drew B. Winters, 2021. "Auditor response to changing risk: money market funds during the financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 56(3), pages 1057-1086, April.
    7. Majid Haghani Rizi & N. Kundan Kishor & Hardik A. Marfatia, 2019. "The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market," The European Journal of Finance, Taylor & Francis Journals, vol. 25(5), pages 395-414, March.
    8. Nicholas Borst, 2013. "Shadow Deposits as a Source of Financial Instability: Lessons from the American Experience for China," Policy Briefs PB13-14, Peterson Institute for International Economics.
    9. Gorton, Gary & Metrick, Andrew & Xie, Lei, 2021. "The flight from maturity," Journal of Financial Intermediation, Elsevier, vol. 47(C).
    10. Akay, Ozgur (Ozzy) & Griffiths, Mark D. & Kotomin, Vladimir & Winters, Drew B., 2013. "A look inside AMLF: What traded and who benefited," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1643-1657.
    11. David Luttrell & Harvey Rosenblum & Jackson Thies, 2012. "Understanding the risks inherent in shadow banking: a primer and practical lessons learned," Staff Papers, Federal Reserve Bank of Dallas, issue Nov.
    12. Kozubovska, Mariolia, 2017. "The effect of US bank holding companies’ exposure to asset-backed commercial paper conduits on the information opacity and systemic risk," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 530-545.
    13. James W. Fuchs & R. Alton Gilbert & Andrew P. Meyer, 2013. "The future of community banks: lessons from banks that thrived during the recent financial crisis," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 115-144.
    14. Andrea Roncella & Ignacio Ferrero, 2020. "A MacIntyrean Perspective on the Collapse of a Money Market Fund," Journal of Business Ethics, Springer, vol. 165(1), pages 29-43, August.
    15. Soeren Radde & Wei Cui, 2013. "Search-Based Endogenous Illiquidity, Business Cycles and Monetary Policy," 2013 Meeting Papers 1009, Society for Economic Dynamics.
    16. Richard G. Anderson & Barry E. Jones, 2011. "A comprehensive revision of the U.S. monetary services (divisia) indexes," Review, Federal Reserve Bank of St. Louis, vol. 93(Sep), pages 325-360.
    17. John V. Duca, 2014. "What drives the shadow banking system in the short and long run?," Working Papers 1401, Federal Reserve Bank of Dallas.
    18. Duca, John V., 2016. "How capital regulation and other factors drive the role of shadow banking in funding short-term business credit," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 10-24.

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    Keywords

    Commercial paper issues; Financial crises;

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