NBER Publications by Philipp Schnabl

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 financi...

We analyze public interventions to alleviate debt overhang among private firms when the government has limited information and limited resources. We first compare the efficiency of buying equity, buying risky assets, and providing debt guarantees. With compulsory participation, all the interventions are equivalent. With endogenous participation, buying equity dominates the two other interventions. We extend our results to deposit insurance, debt covenants, and heterogeneity across assets. Finally, we propose a constrained-efficient mechanism where the government makes a subordinated loan in exchange for call options on equity.