The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market





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    • All authors are at the Federal Reserve Board. This paper represents the views of the authors and does not necessarily represent the views of the Board of Governors or other Federal Reserve staff. We are deeply indebted to two anonymous referees, Campbell Harvey (the Editor), and an Associate Editor for detailed feedback that greatly improved the paper. We thank seminar participants at the Federal Reserve Bank of San Francisco, the Yale Conference on Financial Crisis Research, the IADB-LFN, the IMF, and the Bank of Canada, as well as Viral Acharya, Franklin Allen, Adam Ashcraft, Markus Brunnermeier, William Dudley, Gary Gorton, Zhiguo He, Jeffrey Lacker, Eduardo Levi-Yeyati, Peter Lupoff, Gregory Nini, Philipp Schnabl, Jeremy Stein, and Wei Xiong for useful comments. We also thank Scott Aubuchon, Elisabeth Perlman, and Landon Stroebel for excellent research assistance.


This paper documents “runs” on asset-backed commercial paper (ABCP) programs in 2007. We find that one-third of programs experienced a run within weeks of the onset of the ABCP crisis and that runs, as well as yields and maturities for new issues, were related to program-level and macro-financial risks. These findings are consistent with the asymmetric information framework used to explain banking panics, have implications for commercial paper investors’ degree of risk intolerance, and inform empirical predictions of recent papers on dynamic coordination failures.