Publications

Journal Article

The authors evaluate the manner in which sponsors of highly leveraged asset-backed commercial paper (ABCP) conduits responded to Financial Accounting Standards Board Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities an Interpretation of ARB No. 51, and its Canadian counterpart Accounting Standards Board of Accounting Guideline 15 (AcG-15), Consolidation of Variable Interest Entities.

By matching commercial paper investors with corporations seeking liquidity, ABCP sponsors facilitate a significant amount of short-term, securitized financing in the United States. FIN 46 and AcG-15 require sponsors to consolidate their ABCP conduits with their financial statements.

The authors demonstrate that the volume of ABCP began to decline when FIN 46 was first proposed, and that this decline is primarily attributable to a reduction in North American banks' sponsorship of ABCP.

The authors also demonstrate that North American banks entered into costly restructuring arrangements to avoid having to consolidate their conduits per the new accounting standards. Our results suggest that, in certain settings, accounting standards appear to have real effects on investment activity and product-market competition.