Bloomberg News

Foreign Financial Commercial Paper Falls to Least in 2 Years

December 15, 2011

(Updates with historical data in first paragraph.)

Dec. 15 (Bloomberg) -- Commercial paper sold in the U.S. by foreign banks fell to the lowest level in more than two years as money market lending strains grow on concern that European leaders may fail to stop the region’s debt crisis from tainting bank balance sheets globally.

The drop underscores how banks in Europe are increasingly relying on central banks for financing as their dollar-based funding costs rise to the highest since July 2009, based on the three-month London interbank offered rate.

Foreign financial institutions’ commercial paper fell $3.6 billion to $164.5 billion outstanding in the week ended yesterday, the lowest level since August 2009, the Federal Reserve said today on its website. A drop in short-dated borrowing by U.S.-based banks fell for a second week, decreasing $7.6 billion to $295.7 billion, the Fed said.

U.S. money market funds, typically among the biggest commercial-paper buyers, are reducing holdings as short-term lending market strains grow. Corporations, which issue the IOUs to pay rent and salaries, are using more commercial and industrial bank loans, said Raymond Stone, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey.

“There are significant financial strains, particularly in interbank funding for dollars outside the United States,” Stone said. “This has been eased to an extent by the currency swap lines extended by the Fed and other central banks. But ultimately the natural buyers for commercial paper, the money market funds, have been buying less.”

Overall, the seasonally adjusted amount of U.S. commercial paper outstanding fell by $5.6 billion to $991.7 billion in the week ended Dec. 14, according to the Fed. That’s the biggest decline since the period ending Nov. 9, according to Fed data compiled by Bloomberg.

--Editors: Mitchell Martin, Dennis Fitzgerald

To contact the reporter on this story: John Parry in New York at jparry5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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