The explosive growth of the US ABCP market between 2004 and 2007: an integrated empirical analysis

In common with other sectors of the shadow banking system, the US asset backed commercial paper market experienced unusually rapid growth between 2004 and 2007. Several studies of this development have focussed attention on investor pressures on the banks to expand the rate of ABCP issuance over this period. By contrast, other studies have focussed attention on the incentives that motivated the banks to expand ABCP supply. This paper provides an integrated empirical analysis of the demand-pull and supply-push factors that drove the pre-crisis growth of the ABCP market. In addition to showing the joint importance of these two factors, our results also show the extent to which the European shadow bank conduits dominated US ABCP issuance over the 2004 to 2007 period and the extent to which these conduits increasingly resorted to long term securities as collateral for ABCP programs.