About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (April 13, 2020)

handle is hein.crs/govcuzy0001 and id is 1 raw text is: Researh Sevice COVID-19: Commercial Paper Market Strains and Federal Government Support April 13, 2020 What Is Commercial Paper and Why Is It Important? As COVID- 19 spread rapidly in the United States, fears of its economic effects led to strains in the commercial paper (CP) market, one of the main funding sources for many firms and for providers of credit to individuals. Commercial paper is short-term debt issued primarily by corporations and generally is unsecured. The CP market is an important source of short-term credit for a range of financial and nonfinancial businesses, who may rely on it as an alternative to bank loans-for example, in making payroll or for other short-term funding needs. The CP market also helps provide credit to individuals through short-term asset-backed commercial paper (ABCP), which finances certain consumer loans such as auto loans or other consumer debt. Municipalities also issue CP for short-term funding needs. Some money market funds (MMFs) are key purchasers of CP, which plays a significant role in this short-term funding market. As of March 31, 2020, about 24% of total CP outstanding was ABCP; 47% of total CP was from financial issuers; and 28%o was from nonfinancial issuers. The total CP market in the United States was S1.092 trillion as of the end of March 2020, though this amount can fluctuate based on market conditions. For a sense of scale, this is roughly 65% of the amount of currency in circulation by the public ($1.73 trillion as of March 9, 2020). The CP market grew rapidly in the 1970s and 1980s in the United States, as a lower-cost alternative to bank loans. A provision in the securities laws allowing for an exemption from more elaborate Securities and Exchange Commission (SEC) registration requirements for debt securities with maturities of 270 days or less helped fuel this market's rapid expansion. From 1970 to 1991, outstanding commercial paper grew at an annual rate of 14%. The subsequent growth of securitization, in which loans are packaged into bonds and sold to investors as securities, also fueled a rapid expansion of ABCP. Between 1997 and 2007, ABCP grew from $250 billion to more than $I trillion. This growth was partly fueled by the expansion of residential mortgage securitization. In August 2007, ABCP comprised over 52% of the total CP; financial CP accounted for 38%; and nonfinancial CP constituted 10%. The amount of CP outstanding peaked at $2.2 trillion in August 2007, before shrinking considerably during and after the 2008 financial crisis. Congressional Research Service https://crsreports.congress.gov IN11332 GRS }NS GHT Prepaed for Membeivs and Cornm ittees o4 Cor~qress ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most