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.