Do Credit Lines Provide Reliable Liquidity Insurance? Evidence from Commercial-Paper Backup Lines

Niklas Amberg

No 425, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Commercial-paper backup lines account for a substantial share of undrawn loan commitments in the corporate sector, but have despite this received scant attention in the credit-line literature. In this paper, I study the liquidity-insurance properties of backup lines using a comprehensive loan- and security-level dataset and the sharp contraction of the Swedish commercial-paper market during the COVID-19 pandemic as an exogenous shock to the supply of market-provided liquidity. I find that backup lines provide commercial-paper issuers with reliable liquidity insurance and that banks’ liquidity provision via commercial-paper backup lines in periods of distress does not crowd out lending to other firms.

Keywords: Credit lines; bank lending; liquidity insurance; commercial paper; COVID-19 (search for similar items in EconPapers)
JEL-codes: D22 G21 G32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2023-06-01
New Economics Papers: this item is included in nep-ban
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0425

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