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Do Credit Lines Provide Reliable Liquidity Insurance? Evidence from Commercial-Paper Backup Lines

Author

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  • Amberg, Niklas

    (Research Department, Central Bank of Sweden)

Abstract

Commercial-paper backup lines account for a substantial share of undrawn loan commitments in the corporate sector, but have despite this received scant attention in the credit-line literature. In this paper, I study the liquidity-insurance properties of backup lines using a comprehensive loan- and security-level dataset and the sharp contraction of the Swedish commercial-paper market during the COVID-19 pandemic as an exogenous shock to the supply of market-provided liquidity. I find that backup lines provide commercial-paper issuers with reliable liquidity insurance and that banks’ liquidity provision via commercial-paper backup lines in periods of distress does not crowd out lending to other firms.

Suggested Citation

  • Amberg, Niklas, 2023. "Do Credit Lines Provide Reliable Liquidity Insurance? Evidence from Commercial-Paper Backup Lines," Working Paper Series 425, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0425
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Credit lines; bank lending; liquidity insurance; commercial paper; COVID-19;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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