Bankers and regulators are keeping a close eye on the commercial
paper market, which performs a vital short-term financing role for
companies and financial institutions. In recent weeks there have
been a spate of emergency drawdowns of back-up credit lines, which
are provided by banks as liquidity facilities in the event that
borrowers are unable to issue or roll over CP.
These back-ups are generally priced at below-market levels,
in the expectation that they will not be drawn, and banks have
often provided them as loss-leaders to win more lucrative corporate
finance business.
In addition, rating downgrades have made it more difficult for
several companies to access the CP market and a number of money
market funds - an important element in the investor base for
high-grade CP - are increasingly nervous about buying corporate
paper in the post-Enron environment.
According to the Federal Reserve, outstandings of non-financial CP
have...
