TY  - JOUR
AU  - Kacperczyk,Marcin
AU  - Schnabl,Philipp
TI  - When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15538
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15538
L1  - http://www.nber.org/papers/w15538.pdf
N1  - Author contact info:
Marcin Kacperczyk
Stern School of Business
New York University
44 West 4th Street
KMC 9-190
New York, NY 10012
Tel: 212/998-0924
E-Mail: mkacperc@stern.nyu.edu

Philipp Schnabl
Stern School of Business
New York University
44 West Fourth Street
New York, NY 10012
Tel: 212/998-0356
E-Mail: schnabl@stern.nyu.edu
AB  - 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.
ER  -