Time: 1.30 - 2.30pm Venue: Room 3.21, Old Building, LSE (map)
Speaker: Angela Gallo (Cass Business School) - joint work with Barbara Casu (Cass Business School)
Seminar Title: Beyond Regulatory Arbitrage: Novel Evidence on ABCP Market
Abstract: We present novel evidence of demand and supply factors driving the growth and increased risk-taking of one of the largest producers of money-like claims in the shadow banking system, the asset-backed commercial paper (ABCP) market. On the demand side, we show that an increase in aggregate demand for safe assets led conduits to higher issuance of ABCP notes and higher demand for collateral. On the supply side, rising interest rates increased their cost of funding, leading to an expansion under funding distress. Portfolio-level analysis shows an increase in the holdings of collateral with lower rating and of CDO and MBS, contributing to the vulnerability of the conduits to runs.
