Title: Financial Diffusion - Part II: What's a Commercial Loan?
Abstract: Disintermediation works. Come again? That phrase was used by a banker to describe philosophy behind an intriguing corporate finance arrangement detailed in this month's cover story (p.53). In essence, what a group of regional banks is doing is deliberately harnessing process of disintermediation from commercial loans to commercial paper--asset-backed commercial paper--for middle-market customers. Why would they want to do that? Primarily because middle market is already a target for commercial paper, and some money-center hanks are hunters. Another good reason is because, looked at in total (it requires little or no allocation of capital), practice is more profitable than traditional lending. Coming attraction. Clipper Receivables Corp., particular arrangement described in article, is just getting off ground. It may not fly, of course, so why cover-story treatment? Because asset-backed commercial paper market, of which Clipper is a new wrinkle, is already well off ground, estimated to be about a $40 billion market. So even if Clipper doesn't work, some variation of it will work sooner or later. The four regional banks involved in Clipper decided to make it sooner. None of four banks see asset-backed commercial paper as a replacement for all middle-market commercial loans, but more as an adjunct for qualifying customers. Yet product, it seems to us, has potential to gradually alter middle-market lending landscape much way regular commercial paper has done in Fortune 500 market. Meaning that traditional balance-sheet lenders once again will see best credits go elsewhere, leaving marginal credits behind. (There was a prime example of this several weeks ago when Westinghouse Electric Corp. pulled out of commercial paper market because of credit problems in one of company's units, and activated a group of bank credit lines. The banks involved stand to profit nicely from change, but isn't it ironic and troubling that for big corporations banks now become the lender of last resort? You can be sure, too, that when its condition improves, Westinghouse will be back selling short-term paper.) Watch or join? Stopping continued spread of commercial paper and its relatives is about as likely as stopping continued spread of fax machines. All more so because commercial paper benefits business customer. …
Publication Year: 1992
Publication Date: 1992-12-01
Language: en
Type: article
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