The Evolution of a Financial Crisis: Panic in the Asset-Backed Commercial Paper Market Daniel...

The Evolution of a Financial Crisis:Panic in the Asset-Backed Commercial Paper

Market

Daniel Covitz, Nellie Liang, and Gustavo Suarez*Federal Reserve Board

September 30, 2009

* The views expressed here do not reflect those of the Federal Reserve System or its Board of Governors.

2

The ABCP market in 2007: Outstandings

3

The ABCP market in 2007: Spreads

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.32-

Jan-

07

17-J

an-0

7

31-J

an-0

7

14-F

eb-0

7

1-M

ar-0

7

15-M

ar-0

7

29-M

ar-0

7

12-A

pr-0

7

26-A

pr-0

7

10-M

ay-0

7

24-M

ay-0

7

8-Ju

n-07

22-J

un-0

7

9-Ju

l-07

23-J

ul-0

7

6-A

ug-0

7

20-A

ug-0

7

4-Se

p-07

18-S

ep-0

7

2-O

ct-0

7

17-O

ct-0

7

31-O

ct-0

7

15-N

ov-0

7

30-N

ov-0

7

14-D

ec-0

7

31-D

ec-0

7

perc

enta

ge p

oint

s

Overnight asset-backed commercial paper spread

daily

4

Overview

I. ABCP programs are like banks II. ABCP programs differ by credit, liquidity, sponsor,

and other featuresIII. Measuring “runs”IV. Explaining runsV. Summary and implications

5

The ABCP market

Stylized transaction:

Sellers

Issuer

(ABCP

Program)Investors

Sponsor

Assets

Cash

Asset

Management

CP

Fees

Cash

6

ABCP programs are like banks, but no deposit insurance

• Issues short-term debt to finance assets, such as receivables, loans, and securities• Assets are longer-term and more illiquid than liabilities• Assets are opaque • Investor wants funds on demand at par• Substantial portion of liabilities is ‘overnight’

• Liquidity is achieved by limiting assets to higher quality, shorter maturity, or explicit liquidity support

7

ABCP programs vary by assets and liquidity support

Program Type Assets Liquidity support

Number of programs

Market share (Jul 2007)

Multi seller Receivables, loans Typically Full

98 45

Non-mortgage single seller

Credit-card receivables, auto loans

Partial 40 11

Mortgage single seller

Mortgages and MBS Partial 11 2

Securities arbitrage

Highly-rated long-term securities

Full 35 13

Structured investment vehicles (SIVs)

Highly-rated long-term securities, including MBS

Practically None

35 7

CDOs Highly-rated long-term securities

Partial 36 4

Hybrid and other -- -- 84 18

8

ABCP program also vary by sponsor and other features

• Sponsors – Domestic commercial banks– Foreign commercial banks– Nonbank sponsors – mortgage lenders, finance companies,

asset managers

• Extendibility• Rating

9

Data and methodology

• Transaction-level data from DTCC for all programs in the U.S. market in 2007

• 697,762 primary market transactions by 340 programs over 251 trading days Issuer name, amount, maturity, and issue rate

• Weekly data on maturity distribution of outstandings • Supplement with data from Moody’s on type of

program, ratings, sponsor, and liquidity support characteristics

• Estimations based on about 300 programs with paper maturing each week

10

Measuring runs

• Define a run on an ABCP program as occurring if a program is unable to issue new paper to fund maturing obligations

, -1

Maturing1 if 0.1 and Issuance 0

Outstanding

Run 1 if Run 1 and Issuance 0

0 otherwise

itit

it

it i t it

11

Runs in ABCP Programs

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%3

-Ja

n

17

-Ja

n

31

-Ja

n

14

-Fe

b

28

-Fe

b

14

-Ma

r

28

-Ma

r

11-A

pr

25

-Ap

r

9-M

ay

23

-Ma

y

6-J

un

20

-Ju

n

4-J

ul

18

-Ju

l

1-A

ug

15

-Au

g

29

-Au

g

12

-Se

p

26

-Se

p

10

-Oct

24

-Oct

7-N

ov

21

-No

v

5-D

ec

19

-De

c

Fraction of ABCP programs experiencing "runs"

WeeklyWeekly

12

Runs are “absorbing states” after August 2007

0%

10%

20%

30%

40%

50%

60%3

-Ja

n

17

-Ja

n

31

-Ja

n

14

-Fe

b

28

-Fe

b

14

-Ma

r

28

-Ma

r

11-A

pr

25

-Ap

r

9-M

ay

23

-Ma

y

6-J

un

20

-Ju

n

4-J

ul

18

-Ju

l

1-A

ug

15

-Au

g

29

-Au

g

12

-Se

p

26

-Se

p

10

-Oct

24

-Oct

7-N

ov

21

-No

v

5-D

ec

19

-De

c

Fraction of ABCP programs experiencing runs

Unconditional hazard of leaving the run state

WeeklyWeekly

13

Explaining runs: Methodology

Similar to literature on traditional bank runs:• Gorton (1988), National Banking Era crises• Calomiris and Mason (2003), 1930s failures

Primary hypotheses:H1: Runs are related to program fundamentals• Credit or liquidity risks

H2: Runs are indiscriminate and related to broader market risks• Even programs with sound fundamentals can be run if investors

are concerned about the ability of banks to meet their commitments

• Or if investors are less-than-fully informed

14

Explaining runs: Methodology

Pr(Run 1) ( )it F Xβ

144444444444444444444424444444444444444444443

Program Type Extendibility

Rating Sponsor Type

Program-specific "Fundamentals"

Djm ji m i

j m m

m it km

ttki

m k m

tXβ

• Coefficients on program fundamentals vary by month (m)

• Sample: program between August and December 2007

15

•

Program variables

August September October November December

Program type variables Multi seller -0.086 -0.151** -0.130** -0.144** -0.103[0.075] [0.063] [0.064] [0.063] [0.070]

Non-mortgage single seller 0.074 -0.050 0.009 -0.043 -0.053[0.119] [0.102] [0.117] [0.109] [0.109]

Mortgage single seller 0.288* 0.315 0.284 0.366** 0.448**[0.161] [0.200] [0.202] [0.183] [0.195]

Securities arbitrage -0.058 -0.204*** -0.168** -0.137 -0.091[0.107] [0.067] [0.080] [0.095] [0.111]

Structured invest. vehicle 0.265** 0.200** 0.363*** 0.494*** 0.566***[0.112] [0.102] [0.091] [0.085] [0.071]

CDO 0.224* 0.105 0.122 0.086 0.157[0.136] [0.118] [0.126] [0.132] [0.131]

Contractual features Extendibility 0.347*** 0.406*** 0.431*** 0.453*** 0.492***[0.081] [0.082] [0.078] [0.078] [0.072]

Rating 0.462*** 0.485*** 0.304** 0.366** 0.529***[0.112] [0.117] [0.140] [0.161] [0.150]

Sponsor type variables Small U.S. bank sponsor 0.005 0.095 0.223 0.085 0.179[0.130] [0.155] [0.190] [0.199] [0.196]

Non-U.S. bank sponsor 0.050 0.209* 0.232* 0.236* 0.274**[0.122] [0.116] [0.120] [0.121] [0.131]

Nonbanking sponsor -0.070 0.081 0.160 0.168 0.180[0.106] [0.103] [0.106] [0.112] [0.123]

Time effects


Dummy for the first week - 0.152* 0.142 0.190* 0.121of the month [0.090] [0.098] [0.112] [0.121]

Dummy for the second week 0.033 0.205** 0.124 0.173 0.123of the month [0.039] [0.092] [0.096] [0.115] [0.120]

Dummy for the third week 0.109** 0.211** 0.134 0.206*of the month [0.048] [0.091] [0.097] [0.114]

Dummy for the fourth week 0.184*** 0.245*** 0.127 0.172of the month [0.053] [0.091] [0.094] [0.116]

Dummy for the fifth week 0.247*** 0.162*of the month [0.051] [0.098]

Observations 4734Number of programs 303Pseudo R-squared 0.221

Chi-squared test for program variables, p-value

0.000

Table reports marginal effects of a probit model. Robust standard errors in brackets. *** p<0.01, ** p<0.05, * p<0.1

Dependent variable: Probability of experiencing a run

Interaction with the dummy variable for the month of

Week-fixed effects

16

Program variables







CDO 0.224* 0.105 0.122 0.086 0.157[0.136] [0.118] [0.126] [0.132] [0.131]


Rating 0.462*** 0.485*** 0.304** 0.366** 0.529***[0.112] [0.117] [0.140] [0.161] [0.150]




Time effects









0.000




Week-fixed effects

17

Program variables







CDO 0.224* 0.105 0.122 0.086 0.157[0.136] [0.118] [0.126] [0.132] [0.131]


Rating 0.462*** 0.485*** 0.304** 0.366** 0.529***[0.112] [0.117] [0.140] [0.161] [0.150]




Time effects









0.000




Week-fixed effects

18

Program-specific variables

Program variables







CDO 0.224* 0.105 0.122 0.086 0.157[0.136] [0.118] [0.126] [0.132] [0.131]


Rating 0.462*** 0.485*** 0.304** 0.366** 0.529***[0.112] [0.117] [0.140] [0.161] [0.150]






19

Time dummies

Time effects







Week-fixed effects

20

Explaining runs: Additional evidence

Pr(Run 1) ( )it F Xβ

14444444444444444444444244444444444444444444443, 1

2

1Defaults by progra

Program Type Extendibility

Rating Sponsor Type

Pr

m type

ogram-specific "Fundamen

+ Aggre

l "

a

ta s

g

jm ji m ij m m

m it km kim k m

i t

Xβ 1te defaultst

Estimate for two samples: • August-September• October-December

21

Explaining runs: Additional evidence

Full sample periodAugust-December 2007 Subsample: August-

September 2007Subsample: October-

December 2007

0.004*** 0.009 0.003***[0.001] [0.007] [0.001]

0.098*** 0.130*** 0.034[0.031] [0.029] [0.086]

Observations 4425 1949 2476Number of programs 288 282 272Pseudo R2 0.183 0.157 0.186

Table reports marginal effects of a probit model. Robust standard errors in brackets.*** p<0.01, ** p<0.05, * p<0.1

Lagged fraction of outstandings indefault of extension by program type

Lagged fraction of market-wideoutstandings in default of extension


Subperiods

22

Risk spreads indicate runs reflect difficulties in issuing, not less willingness

-0.10

0.10

0.30

0.50

0.70

0.90

1.10

1.30

1.50

1.701-

Jun-

07

15-J

un-0

7

29-J

un-0

7

16-J

ul-0

7

30-J

ul-0

7

13-A

ug-0

7

27-A

ug-0

7

11-S

ep-0

7

25-S

ep-0

7

10-O

ct-0

7

24-O

ct-0

7

7-N

ov-0

7

23-N

ov-0

7

7-D

ec-0

7

21-D

ec-0

7

perc

enta

ge p

oint

s

Overnight spread for multi-seller programs

Overnight spread for securities arbitrage programs

Overnight spread for structured investment vehicles

daily

23

Summary

• ABCP programs are subject to runs

• Runs were related to fundamentals, but also indiscriminate (variation not explained by fundamentals) in initial weeks

• In later weeks, runs were mostly discriminating based on fundamentals.

• Why were good programs run?– Investors may not know actual credit exposures or asset-

liability mismatch of each program– Even fully-informed investors may run good programs

because concerned that banks will be called on to meet explicit and implicit commitments, and they cannot support the whole market

24

Implications

• Widespread runs not entirely explained by program-level fundamentals suggest that the ABCP market is inherently unstable

• Banks need to consider their exposures to explicit and implicit off-balance sheet commitments, and spillover effects

• Public sector is exposed to runs in the shadow banking system because there may not be enough private capital to purchase all the assets

25

END

26

Market behavior at the onset of financial turmoil

27

Market behavior at the onset of financial turmoil

28

Distribution of overnight ABCP spreads

29


30


31


32

Spreads for different program types

0

20

40

60

80

100

120

16-J

ul-0

7

23-J

ul-0

7

30-J

ul-0

7

6-A

ug-0

7

13-A

ug-0

7

20-A

ug-0

7

27-A

ug-0

7

3-S

ep-0

7

10-S

ep-0

7

17-S

ep-0

7

24-S

ep-0

7

1-O

ct-0

7

8-O

ct-0

7

15-O

ct-0

7

22-O

ct-0

7

29-O

ct-0

7

5-N

ov-0

7

12-N

ov-0

7

Multi-seller spreads

Securities arbitrage spreads

Single-seller spreads

Source: Federal Reserve Board and program classification from Moody's.

basis points daily

33

Coefficient Interaction with

ABX.HE AAA index (2006:H2)









Marginal effect

Program Multi seller -0.023 -0.012 -0.098 -0.009 -0.079 -0.010 -0.101 0.001 -0.113 0.006type [0.049] [0.014] [0.068] [0.017] [0.071] [0.012] [0.086] [0.021] [0.080] [0.006]

Non-mortgage single seller 0.052 -0.027 0.006 -0.003 0.067 0.001 0.012 0.010 -0.057 0.008[0.074] [0.017] [0.091] [0.023] [0.105] [0.010] [0.115] [0.020] [0.109] [0.007]

Mortgage single seller 0.293* 0.009 0.430** -0.057 0.347* -0.010 0.267 -0.071 0.449** 0.008[0.160] [0.021] [0.187] [0.045] [0.195] [0.013] [0.196] [0.076] [0.178] [0.005]

Securities arbitrage 0.024 -0.025* -0.139* 0.032 -0.122 -0.014 -0.124 -0.005 -0.064 0.003[0.073] [0.014] [0.074] [0.024] [0.082] [0.014] [0.097] [0.019] [0.105] [0.007]

Structured invest. vehicle 0.071 -0.007 0.160* 0.003 0.295*** -0.020 0.432*** 0.002 0.387*** 0.007[0.072] [0.016] [0.094] [0.032] [0.098] [0.017] [0.105] [0.024] [0.099] [0.010]

CDO 0.102 -0.034* 0.075 0.011 0.087 -0.003 0.022 -0.012 0.067 0.009[0.096] [0.017] [0.103] [0.031] [0.113] [0.013] [0.121] [0.020] [0.115] [0.007]

Extendibility 0.239*** - 0.339*** - 0.372*** - 0.437*** - 0.494*** -[0.066] [0.081] [0.077] [0.076] [0.074]

Lower Rating 0.451*** - 0.475*** - 0.306** - 0.233 - 0.445*** -[0.147] [0.130] [0.152] [0.198] [0.133]

Sponsor Small U.S. bank 0.052 - 0.110 - 0.273 - 0.163 - 0.198 -type [0.093] [0.154] [0.186] [0.209] [0.201]

Non-U.S. bank 0.038 - 0.120 - 0.141 - 0.198 - 0.247** -[0.075] [0.109] [0.117] [0.124] [0.124]

Nonbanking Institution -0.019 - 0.066 - 0.132* - 0.176** - 0.172* -[0.065] [0.079] [0.079] [0.088] [0.093]

- - - - - - - - - -

0.012 - 0.062* - -0.002 - 0.005 - 0.046 -[0.025] [0.032] [0.018] [0.047] [0.034]

0.132*** - 0.065*** - 0.003 - 0.029 - 0.056 -[0.049] [0.025] [0.022] [0.026] [0.042]

0.181*** - 0.065* - -0.005 - 0.008 - 0.076* -[0.052] [0.037] [0.025] [0.027] [0.044]

0.250*** - - - -0.026 - - - - -[0.084] [0.044]

Observations 1385 1109 1427 1140 1143Number of programs 292 293 298 296 297Pseudo R-squared 0.164 0.165 0.164 0.192 0.202Robust standard errors in bracketsIndicator variables are excluded from the regression when their taking value 0 or 1 predicts run or no run perfectly.


Regression 3Sample: October 2007

Regression 4Sample: November 2007

Regression 2Sample: September

2007

Regression 5Sample: December 2007

Regression 1Sample: August 2007

Dummy for the second week of the month

Dummy for the fifth week of the month

Dummy for the fourth week of the month

Dummy for the third week of August

Dummy for the first week of the month

34

Month Week time dummy Events in Money Markets July Week 1 (ending July

4)

Week 2 (ending July 11)



Countrywide disappointing earnings announcement (July 24)

August Week 1 (ending Aug 1)

Week 2 (ending Aug 8)

American Home Mortgage declares bankruptcy (Aug 6) Three single-seller mortgage ABCP programs extend

the maturity of their paper (Aug 6)


BNP halts redemptions at two affiliated funds (Aug 9) ECB injects liquidity in money markets (Aug 9) Federal Reserve provides liquidity (Aug 10) Canadian ABCP market seizes up (Aug 14)


Countrywide taps on its credit lines (Aug 16) Federal Reserve cuts primary credit rate 50 basis

points (Aug 17) An ABCP program affiliated with KKR Financial extends

the maturity of its paper (Aug 20) An SIV-lite sponsored by Solent Capital defaults on its

ABCP (Aug 22)


A second ABCP program affiliated with KKR Financial extends the maturity of its paper (Aug 23)

Investment-quality ABCP accepted as discount-window collateral at the Federal Reserve (Aug 24)

35

Month Week time dummy Events in Money Markets September Week 1 (ending Sept

5) An SIV program sponsored by Cheyne Capital

Management draws on its credit lines (Aug 30). Moody’s downgrades or placed under review the

ratings of several ABCP programs issued by SIVs (Sept 5)

Week 2 (ending Sept

12) SIFMA, the American Securitization Forum, and the

European Securitization Forum recommend disclosure of holdings by ABCP programs (Sept 12)

Week 3 (ending Sept

19) Federal Reserve cuts fed funds target rate 50 basis

points (Sept 18)

Week 4 (ending Sept 26)

36

Month Week time dummy Events in Money Markets October Week 1 (ending Oct 3)

Week 2 (ending Oct 10)


Citigroup, Bank of America, and JP Morgan Chase announced the M-LEC to backstop paper issued by SIVs (Oct 15)

An SIV program sponsored by Cheyne Capital Management defaults (Oct 17)


An SIV program sponsored by IKB Credit Management defaults (Oct 18)


Federal Reserve cuts fed funds target rate 25 basis points (Oct 31)

November Week 1 (ending Nov

7)

Moody’s Investors Service downgrades and places under review several SIVs (Nov 7)

Week 2 (ending Nov

14)

Week 3 (ending Nov 21)

Week 4 (ending Nov 28)

37

April May June July August September October November DecemberCoefficient

Program Multi seller 0.006 0.007* -0.015 0.001 -0.036 -0.143* -0.127** -0.097** -0.093type [0.007] [0.004] [0.020] [0.008] [0.036] [0.078] [0.051] [0.038] [0.058]

Non-mortgage single seller -0.029 -0.035 -0.046 -0.032 -0.026 -0.005 -0.041 -0.026 0.050[0.033] [0.041] [0.036] [0.035] [0.076] [0.153] [0.104] [0.083] [0.113]

Mortgage single seller 0.028** 0.043*** 0.012 0.028** 0.148** 0.341*** 1.015*** 1.220*** 1.412***[0.013] [0.016] [0.024] [0.012] [0.069] [0.112] [0.129] [0.076] [0.037]

Securities arbitrage 0.001 0.004 -0.019 0.000 -0.082 -0.117 -0.049 -0.048 0.014[0.008] [0.006] [0.021] [0.009] [0.065] [0.106] [0.081] [0.070] [0.117]

Structured invest. vehicle 0.005 0.009* -0.017 0.003 -0.007 0.005 0.168 0.311*** 0.278**[0.006] [0.005] [0.019] [0.008] [0.053] [0.116] [0.137] [0.062] [0.110]

CDO 0.022*** 0.027*** 0.008 0.026*** -0.169*** 0.120 0.585*** 0.000 0.395***[0.005] [0.003] [0.022] [0.010] [0.042] [0.139] [0.047] [0.000] [0.040]

Extendibility 0.032*** 0.029** 0.039*** 0.054*** 0.247*** 0.370*** 0.049 0.176 0.224[0.010] [0.011] [0.012] [0.010] [0.082] [0.134] [0.096] [0.130] [0.139]

Rating 0.083*** 0.084*** 0.096*** 0.086*** 0.380*** 0.370** 0.361** 0.291*** 0.142*[0.007] [0.003] [0.007] [0.009] [0.067] [0.175] [0.182] [0.108] [0.072]

Sponsor Small U.S. bank 0.034* 0.030*** 0.050*** 0.041*** 0.278*** 0.545*** 0.325*** 0.290*** 0.370***type [0.019] [0.011] [0.015] [0.012] [0.055] [0.093] [0.075] [0.032] [0.077]

Non-U.S. bank 0.007 0.009* 0.017** 0.011** 0.133** 0.204* 0.109 0.084 0.134[0.012] [0.005] [0.008] [0.005] [0.054] [0.107] [0.067] [0.051] [0.086]

Nonbanking Institution 0.008 0.017*** 0.026*** 0.023*** 0.135*** 0.217*** 0.094** 0.113*** 0.182***[0.012] [0.006] [0.008] [0.006] [0.044] [0.077] [0.044] [0.038] [0.061]

Constant 0.024** -0.003 0.009 0.004 0.567*** 0.520*** 0.174*** 0.458*** 0.291***[0.012] [0.005] [0.018] [0.009] [0.111] [0.093] [0.056] [0.050] [0.071]

Time dummies Yes Yes Yes Yes Yes Yes Yes Yes Yes

Observations 1766 1912 2208 2261 2429 1884 2025 1775 1608R-squared 0.156 0.324 0.052 0.351 0.416 0.271 0.404 0.486 0.359F test Time dummies = 0, p-value 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Robust standard errors in brackets*** p<0.01, ** p<0.05, * p<0.1

Dependent variable: Overnight spread over fed funds target rate (percentage points)

38

April May June July August September October November DecemberCoefficient

Program Multi seller 0.006 0.007* -0.015 0.001 -0.036 -0.143* -0.127** -0.097** -0.093type [0.007] [0.004] [0.020] [0.008] [0.036] [0.078] [0.051] [0.038] [0.058]

Non-mortgage single seller -0.029 -0.035 -0.046 -0.032 -0.026 -0.005 -0.041 -0.026 0.050[0.033] [0.041] [0.036] [0.035] [0.076] [0.153] [0.104] [0.083] [0.113]

Mortgage single seller 0.028** 0.043*** 0.012 0.028** 0.148** 0.341*** 1.015*** 1.220*** 1.412***[0.013] [0.016] [0.024] [0.012] [0.069] [0.112] [0.129] [0.076] [0.037]

Securities arbitrage 0.001 0.004 -0.019 0.000 -0.082 -0.117 -0.049 -0.048 0.014[0.008] [0.006] [0.021] [0.009] [0.065] [0.106] [0.081] [0.070] [0.117]

Structured invest. vehicle 0.005 0.009* -0.017 0.003 -0.007 0.005 0.168 0.311*** 0.278**[0.006] [0.005] [0.019] [0.008] [0.053] [0.116] [0.137] [0.062] [0.110]

CDO 0.022*** 0.027*** 0.008 0.026*** -0.169*** 0.120 0.585*** 0.000 0.395***[0.005] [0.003] [0.022] [0.010] [0.042] [0.139] [0.047] [0.000] [0.040]

Extendibility 0.032*** 0.029** 0.039*** 0.054*** 0.247*** 0.370*** 0.049 0.176 0.224[0.010] [0.011] [0.012] [0.010] [0.082] [0.134] [0.096] [0.130] [0.139]

Rating 0.083*** 0.084*** 0.096*** 0.086*** 0.380*** 0.370** 0.361** 0.291*** 0.142*[0.007] [0.003] [0.007] [0.009] [0.067] [0.175] [0.182] [0.108] [0.072]

Sponsor Small U.S. bank 0.034* 0.030*** 0.050*** 0.041*** 0.278*** 0.545*** 0.325*** 0.290*** 0.370***type [0.019] [0.011] [0.015] [0.012] [0.055] [0.093] [0.075] [0.032] [0.077]

Non-U.S. bank 0.007 0.009* 0.017** 0.011** 0.133** 0.204* 0.109 0.084 0.134[0.012] [0.005] [0.008] [0.005] [0.054] [0.107] [0.067] [0.051] [0.086]

Nonbanking Institution 0.008 0.017*** 0.026*** 0.023*** 0.135*** 0.217*** 0.094** 0.113*** 0.182***[0.012] [0.006] [0.008] [0.006] [0.044] [0.077] [0.044] [0.038] [0.061]

Constant 0.024** -0.003 0.009 0.004 0.567*** 0.520*** 0.174*** 0.458*** 0.291***[0.012] [0.005] [0.018] [0.009] [0.111] [0.093] [0.056] [0.050] [0.071]

Time dummies Yes Yes Yes Yes Yes Yes Yes Yes Yes

Observations 1766 1912 2208 2261 2429 1884 2025 1775 1608R-squared 0.156 0.324 0.052 0.351 0.416 0.271 0.404 0.486 0.359F test Time dummies = 0, p-value 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Robust standard errors in brackets*** p<0.01, ** p<0.05, * p<0.1

Dependent variable: Overnight spread over fed funds target rate (percentage points)

39

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Janu

ary-

07

Feb

ruar

y-07

Mar

ch-0

7

Ap

ril-0

7

May

-07

June

-07

July

-07

Aug

ust-

07

Sep

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-07

Oct

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7

No

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Dec

emb

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7

Regression with time-fixed effects only

Regression with program characteristics only

monthly

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