In August of 2007, banks faced a freeze in funding liquidity from the asset-backed commercial paper (ABCP) market. We … investigate how banks scrambled for liquidity in response to this freeze and its implications for corporate borrowing. Commercial …

drying up of liquidity. Financial firms raise short-term debt in order to finance assetpurchases. When asset fundamentals … de-lever by selling assets to better-capitalizedfirms. Thus the market liquidity of assets depends on the severity of the … market liquidity can in fact be greater.... …