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.
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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.
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