Public Finance Quarterly Archive Articles

Changes in the Financial Regulatory Environment of Commercial Papers in the United States and Europe

15:17, január 10, 2018.
András Kecskés
PhD, Head of Department, Associate Professor,
University of Pécs,
Faculty of Law

Published in: Public Finance Quarterly 2017/4. (p. 537-553.)

Summary: Owing to their liquid nature and their presumed lack of risk, commercial papers have always played a key role in the portfolio of money-market funds. The latter perception was largely fuelled by the fixed NAV calculation method (USD 1) widely employed by market participants for the calculation of the daily net asset value of money market funds’ shares.1 The economic crisis of 2007–2009 and the European sovereign debt crisis in 2010–2011, however, demonstrated that – in the lack of adequate regulation – commercial papers carry inherent macroeconomic threats in the course of the operation of international money and capital markets. The aim of the study is to give an overview of the regulatory changes affecting commercial papers and money market funds in the period of 2011–2016, with special regard to the possible effects of the changes on the state budget via money market funds in the United States. With the proliferation of asset-backed commercial papers, commercial papers lost not only their low-risk status, but also their unsecured nature. Indeed, in the absence of proper regulation money market funds built an enormous portfolio of such toxic assets during the crisis of 2007–2009, particularly in the United States. With the re-regulation of money market funds – by abolishing the fixed net asset value calculation method and by restricting investments to truly short-term and low-risk money market assets, the Securities and Exchange Commission (SEC) followed this process, and restored the status of money market funds as low-risk and high-liquidity investment vehicles. In the study the author uses quantitative analysis and comparative analysis to gauge the effect of the regulatory changes.

Keywords: money and capital market, money market fund, commercial paper, financial regulation

JEL codes: D35, E44, E58, G28

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