ABCP PROGRAMME Meaning and
Definition
-
The term "ABCP programme" refers to an Asset-Backed Commercial Paper programme. It is a financing method used by various institutions, such as banks and corporations, to raise short-term capital by issuing commercial paper backed by specific pools of assets. This programme allows these institutions to convert illiquid assets, such as mortgages or consumer loans, into short-term securities that can be easily traded in the financial markets.
Under an ABCP programme, the sponsoring institution sets up a special-purpose vehicle (SPV) that acquires the assets from the originating institution at a discount. The SPV then issues commercial paper backed by the cash flows generated by the underlying assets. This provides the sponsoring institution with a means to access short-term funding without tying up its balance sheet and also provides investors with a low-risk investment opportunity.
Investors who participate in an ABCP programme are attracted by the relatively high credit quality of the underlying assets, as they typically consist of diversified pools of high-quality loans. These programmes have gained popularity due to their ability to provide short-term liquidity to financial institutions and corporations while diversifying risk.
However, it is important to note that ABCP programmes were at the center of the global financial crisis in 2007-2008, as concerns arose regarding the quality of the underlying assets and the potential for liquidity problems. As a result, regulators have imposed stricter rules and enhanced transparency requirements to mitigate the risks associated with these programmes.
Etymology of ABCP PROGRAMME
The etymology of the term "ABCP programme" can be broken down as follows:
1. ABCP: ABCP stands for Asset-Backed Commercial Paper. This term originated in the financial industry and refers to a type of short-term debt security that is backed by a specific pool of assets, such as loans or mortgages.
2. Programme: The term "programme" is derived from the Latin word "programma", which means a written public notice or proclamation. It entered English via French in the early 17th century and came to refer to a planned series of related activities or events.
Therefore, the term "ABCP programme" refers to a structured plan or series of activities involving the issuance and management of asset-backed commercial papers.
