IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/15538.html
   My bibliography  Save this paper

When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009

Author

Listed:
  • Marcin Kacperczyk
  • Philipp Schnabl

Abstract

Commercial paper is one of the largest money market instruments and has long been viewed as a safe haven for investors seeking low risk. However, during the financial crisis of 2007-2009, the commercial paper market experienced twice the modern-day equivalent of a bank run with investors unwilling to refinance maturing commercial paper. We analyze the supply of and demand for commercial paper and show that, in contrast to previous turbulent episodes, the crisis centered on commercial paper issued by, or guaranteed by, financial institutions. We describe the importance of Federal Reserve's interventions in restoring stability of the market. Finally, we propose three possible explanations for the sharp decline of the commercial paper market: substitution to alternative sources of financing by commercial paper issuers, adverse selection, and institutional constraints among money market funds.

Suggested Citation

  • Marcin Kacperczyk & Philipp Schnabl, 2009. "When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009," NBER Working Papers 15538, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15538
    Note: AP CF
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w15538.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 171-177.
    2. Oecd, 2008. "DAC Peer Review of Denmark," OECD Journal on Development, OECD Publishing, vol. 8(4), pages 7-125.
    3. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
    4. (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 171-179.
    5. (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 187-192.
    6. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    7. Timothy Q. Cook & Robert K. LaRoche, 1993. "Instruments of the money market," Monograph, Federal Reserve Bank of Richmond, number 1993iotm, January.
    8. Timothy Q. Cook & Robert K. LaRoche, 1993. "Instruments of the money market (foreword)," Monograph, Federal Reserve Bank of Richmond, number 1993iotmm, January.
    9. Marcin Kacperczyk & Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Rational Attention Allocation Over the Business Cycle," NBER Working Papers 15450, National Bureau of Economic Research, Inc.
    10. Oecd, 2009. "Monitoring Review of Korea," OECD Journal: Competition Law and Policy, OECD Publishing, vol. 9(3), pages 107-137.
    11. Calomiris, Charles W. & Himmelberg, Charles P. & Wachtel, Paul, 1995. "Commercial paper, corporate finance, and the business cycle: a microeconomic perspective," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 203-250, June.
    12. (Various), 2007. "Book Reviews," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 175-187.
    13. Oecd, 2008. "DAC Peer Review of Canada," OECD Journal on Development, OECD Publishing, vol. 8(4), pages 263-387.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andreas Ortmann & Benoît Walraevens, 2012. "Adam Smith, Philosopher and Man of the World," Post-Print halshs-00756341, HAL.
    2. José Cendejas Bueno & Cecilia Font de Villanueva, 2015. "Convergence of inflation with a common cycle: estimating and modelling Spanish historical inflation from the 16th to the 18th centuries," Empirical Economics, Springer, vol. 48(4), pages 1643-1665, June.
    3. Edmund Byrne, 2014. "Towards Enforceable Bans on Illicit Businesses: From Moral Relativism to Human Rights," Journal of Business Ethics, Springer, vol. 119(1), pages 119-130, January.
    4. Hofstad, Ole & Araya, Meley Mekonen, 2015. "Optimal wood harvest in miombo woodland considering REDD+payments — A case study at Kitulangalo Forest Reserve, Tanzania," Forest Policy and Economics, Elsevier, vol. 51(C), pages 9-16.
    5. Betakova, Vendula & Vojar, Jiri & Sklenicka, Petr, 2015. "Wind turbines location: How many and how far?," Applied Energy, Elsevier, vol. 151(C), pages 23-31.
    6. Louise Bedsworth, 2012. "California’s local health agencies and the state’s climate adaptation strategy," Climatic Change, Springer, vol. 111(1), pages 119-133, March.
    7. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    8. Waters, James, 2014. "Introduction of innovations during the 2007-8 financial crisis: US companies compared with universities," MPRA Paper 59016, University Library of Munich, Germany.
    9. Gunay, Samet, 2020. "Seeking causality between liquidity risk and credit risk: TED-OIS spreads and CDS indexes," Research in International Business and Finance, Elsevier, vol. 52(C).
    10. Athreya, Kartik B., 2014. "Big Ideas in Macroeconomics: A Nontechnical View," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262019736, December.
    11. Efing, Matthias & Hau, Harald, 2015. "Structured debt ratings: Evidence on conflicts of interest," Journal of Financial Economics, Elsevier, vol. 116(1), pages 46-60.
    12. Athreya, Kartik, 2006. "Fresh start or head start? Uniform bankruptcy exemptions and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 2051-2079, November.
    13. Valentina Peruzzi, 2017. "Does family ownership structure affect investment-cash flow sensitivity? Evidence from Italian SMEs," Applied Economics, Taylor & Francis Journals, vol. 49(43), pages 4378-4393, September.
    14. Goldstein, Itay & Razin, Assaf, 2015. "Three Branches of Theories of Financial Crises," Foundations and Trends(R) in Finance, now publishers, vol. 10(2), pages 113-180, 30.
    15. Piotr Ciżkowicz & Andrzej Rzońcaz, 2017. "Are Major Central Banks Blinded By The Analytical Elegance Of Their Models? Possible Costs Of Unconventional Monetary Policy Measures," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(01), pages 87-108, March.
    16. Pu Liu & Yingying Shao, 2013. "Small business loan securitization and interstate risk sharing," Small Business Economics, Springer, vol. 41(2), pages 449-460, August.
    17. Christophe Pérignon & David Thesmar & Guillaume Vuillemey, 2018. "Wholesale Funding Dry‐Ups," Journal of Finance, American Finance Association, vol. 73(2), pages 575-617, April.
    18. Stephen Morris & Hyun Song Shin, 2012. "Contagious Adverse Selection," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 1-21, January.
    19. Hiroki Toyoda, 2018. "Bank Runs and Asset Price Collapses," KIER Working Papers 988, Kyoto University, Institute of Economic Research.
    20. Roberto Robatto, 2015. "Financial Crises and Systemic Bank Runs in a Dynamic Model of Banking," 2015 Meeting Papers 483, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15538. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.