The Commercial Paper Market, the Fed, and the 2007-2009 Financial Crisis

Anderson, Richard G.; Gascon, Charles S.

doi:10.20955/r.91.589-612

Cited by 45 publications

(32 citation statements)

References 10 publications

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“…We focus on the timing of Federal Reserve lending operations to support the commercial paper market. The terms under which the Federal Reserve purchased commercial paper provided an incentive for firms to seek other sources of funds when the commercial paper market began to function again as a source of credit (Anderson and Gascon, 2009). Figure 1 indicates that the amount of commercial paper held by the Federal Reserve peaked in early 2009 and was close to zero by early 2010.…”

Section: Thriving Versus Surviving Community Banksmentioning

confidence: 99%

The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis

Gilbert¹,

Meyer²,

Fuchs³

2013

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Section: Thriving Versus Surviving Community Banksmentioning

confidence: 99%

The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis

Gilbert¹,

Meyer²,

Fuchs³

2013

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“…For instance, Krishnamurthy et al (2012) document that in the market for money market funds, a usually liquid market, there were instances of "buyers' strikes" during the recent financial crisis, where investors were unwilling to trade at any price. Anderson and Gascon (2009) These illiquidity crises occur regularly in many asset markets. 12 Other examples include the previously mentioned repo market (Gorton and Metrick, 2012); residential and commercial mortgagebacked securities (Gorton, 2009;Acharya and Schnabl, 2010;Dwyer and Tkac, 2009); structured credit (Brunnermeier, 2009); and the auction rate security market (McConell and Saretto, 2010), 11 In 2008, Harvard University held close to two-thirds of its portfolio in illiquid assets.…”

mentioning

confidence: 99%

Portfolio Choice with Illiquid Assets

Ang¹,

Papanikolaou²,

Westerfield³

2013

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We present a model of optimal allocation over liquid and illiquid assets, where illiquidity is the restriction that an asset cannot be traded for intervals of uncertain duration. Illiquidity leads to increased and state-dependent risk aversion, and reduces the allocation to both liquid and illiquid risky assets. Uncertainty about the length of the illiquidity interval, as opposed to a deterministic non-trading interval, is a primary determinant of the cost of illiquidity. We allow market liquidity to vary from `normal' periods, when all assets are fully liquid, to 'illiquidity crises,' when some assets can only be traded infrequently. The possibility of a liquidity crisis leads to limited arbitrage in normal times. Investors are willing to forego 2% of their wealth to hedge against illiquidity crises occurring once every ten years.

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“…Anderson et al (2009) explain that huge increase in the assets of the MMFs led to an increase in the share of the MMFs in the CP market from 18% in 1980 to almost 40% in 2008. At the same time, the simultaneous development of the CP and the repo markets facilitated the growth of the MMFs, as they became an important source of investments for the MMFs.…”

mentioning

confidence: 98%

“…Prior to 1970, the MMFs invested mainly in the U.S. Treasury debt. However, since 1970, they became an alternate form of investment to the traditional banks, and a new source of deposits for investors as they offered slightly higher returns than the conventional bank deposits (Anderson et al, 2009). …”

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confidence: 99%

The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market

Rizi

Kishor

Marfatia

2018

The European Journal of Finance

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In this paper, we investigate the short-run and the long-run relationship among the financial assets of the money market funds, the commercial paper, and the repurchase agreement markets by undertaking a cointegration analysis of quarterly data over the 1985-2017 period. The evidence suggests that there exists a common long-term cointegrating trend among these three components of the shadow banking system. Any disequilibrium in this long-run relationship among these variables is corrected by movement in the financial assets of the money market funds. The Beveridge-Nelson decomposition from the estimated cointegrating relationship shows that the cyclical component in the money market funds is large and captures the huge swings in these markets during the financial crisis. Our results confirm the narrative evidence presented in Krishnamurthy et al. (2014), who argue that the short-term debt market investment opportunities in the form of the commercial paper and the repo market played a crucial role in the expansion of the balance sheet of the money market funds. JEL Classifications: E44, G01, G10, G21, C32.

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The Commercial Paper Market, the Fed, and the 2007-2009 Financial Crisis

Cited by 45 publications

References 10 publications

The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis

The Future of Community Banks: Lessons from Banks That Thrived During the Recent Financial Crisis

Portfolio Choice with Illiquid Assets

The dynamic relationship among the money market mutual funds, the commercial paper market, and the repo market

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