Asset-backed commercial paper program
What is asset-backed commercial paper program?
This is a way of offering low-cost financing to companies that would not otherwise be able to borrow in the commercial paper markets. Asset-backed commercial paper is a form of short-term borrowing issued by a bank or other financial institution.
Where have you heard about asset-backed commercial paper program?
The programs first emerged in the mid-80s, but you might have heard them being blamed as one of the causes of the 2008 financial crisis. This is because they help fund bank assets that do not appear on balance sheets.
What you need to know about asset-backed commercial paper program.
Asset-backed commercial paper is a form of senior secured, short-term borrowing, unlike corporate commercial paper, which is senior unsecured short-term corporate debt. ABCP programs were first set up by big commercial banks, who sponsored the programs as a way of providing finance to corporate customers. They're sometimes considered part of the shadow banking system because they provide liquidity and maturity transformation services, just like banks. As well as providing finance for companies, they can also offer leverage to mutual funds.