The Federal Reserve and the 2007–2009 Financial Crisis: Treating a Virus with Antibiotics? Evidence from the Commercial Paper Market

Griffiths, Mark D.; Kotomin, Vladimir; Winters, Drew B.

doi:10.1111/j.1540-6288.2011.00311.x

Cited by 14 publications

(9 citation statements)

References 23 publications

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“…Overall, we find that the credit spreads of CRI‐insured bonds increase significantly when the CRIs are downgraded or put into the negative watch list. The evidence suggests that counterparty contagion is a major driver for systemic risk, consistent with the finding of other recent studies (Jorion and Zhang, ; Griffiths, Kotomin and Winters, ). Although the analysis is on corporate bonds, the specific channel of counterparty risk identified here is applicable to all types of securities.…”

Section: Contagion Effect Of Insurer Rating Downgradessupporting

confidence: 90%

Systemic Risk, Financial Crisis, and Credit Risk Insurance

Chen

Sun

et al. 2013

The Financial Review

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Differing from conventional insurance firms whose underwriting business does not contribute to systemic risk, credit risk insurance companies providing credit protections for debt obligations are exposed to systemic risk. We show that credit risk insurers (CRIs) underperformed conventional insurance companies during the 2007–2009 financial crisis, and such underperformance is attributed to the greater systemic risk of CRIs. We also find that the credit spreads of insured bonds increase significantly after their insurers are downgraded or put in the negative watch list. We control for alternative factors affecting bond credit spreads and the result is robust.

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Section: Contagion Effect Of Insurer Rating Downgradessupporting

confidence: 90%

Systemic Risk, Financial Crisis, and Credit Risk Insurance

Chen

Sun

et al. 2013

The Financial Review

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“…My article expands the line of research that focuses on the effectiveness of Fed interventions in the money market. A line of research studies the effect of the AMLF: Griffiths et al (2011) find little evidence that Fed liquidity facilities reduced the effect of the crisis. However, Duygan‐Bump et al (2013) study the AMLF and conclude this facility helped stabilize asset outflows from MMFs and significantly reduced ABCP yields.…”

Section: Institutional Background Of the Mmlf And The Related Literaturementioning

confidence: 99%

The effect of the Money Market Mutual Fund Liquidity Facility (MMLF) on corporate short‐term borrowing costs

Jang

2023

J of Financial Research

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In this article, I study the effect of the Money Market Fund Liquidity Facility (MMLF) on corporate short‐term borrowing costs. Although MMLF loans accept a broader range of collateral acquired from money market funds (MMFs) than Asset‐Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) loans, their higher loan rates could make the intervention less effective. I find the average yield has decreased by 20–24 basis points. The yield‐decreasing effects of the MMLF are stronger for securities issued by eligible non‐US firms, non‐asset‐backed commercial paper securities that are newly accepted as collateral under the MMLF, and securities held by affiliated MMFs. However, I do not find an additional yield‐decreasing effect of the MMLF on lower rated securities or nonfinancial sector securities. After the implementation of the MMLF, domestic MMFs seem to increase the weight of nonfinancial sector securities, which helps them achieve a higher return.

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“…4. We subdivide the crisis timeline by identifying well accepted events in Figure 1: the BNP Paribus (August 9, 2007) announcement of the inability to value certain mortgage backed derivative structures, the Bear Stearns (March 14, 2008) failure, the Lehman Brothers (September 12, 2008) bankruptcy. Afonso et al (2011), Kacperczyk and Schnabl (2010) and Griffiths et al (2011) all use similar events in their analyses of the money markets during the crisis.…”

Section: Notesmentioning

confidence: 99%

Financial crisis solutions in the commercial paper market

Fairbanks

Griffiths

Winters

2019

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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.

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The Federal Reserve and the 2007–2009 Financial Crisis: Treating a Virus with Antibiotics? Evidence from the Commercial Paper Market

Cited by 14 publications

References 23 publications

Systemic Risk, Financial Crisis, and Credit Risk Insurance

Systemic Risk, Financial Crisis, and Credit Risk Insurance

The effect of the Money Market Mutual Fund Liquidity Facility (MMLF) on corporate short‐term borrowing costs

Financial crisis solutions in the commercial paper market

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