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ABCP Not Quite a Blessing to Banks

Commercial-Paper-Trading When the s#@% hit the fan in the ABCP market last summer, banks thought they’d be in the driver’s seat.  They figured they’d pick up lots of market share as alternative lenders scurried to find new funding sources.  (Many non-bank lenders rely heavily on ABCP and other unique credit facilities.)

Funny enough, the opposite has occurred in many cases.  The credit crisis has driven up the cost of funds for all lenders, including banks.  In addition, many non-bank lenders have already persevered and secured alternative financing. 

Even the government-sponsored mortgage-backed bond market is working to the advantage of smaller lenders.  That’s because big banks have been somewhat restricted from tapping this market.

The net result is that many non-bank lenders (like MyNext) are now in stronger long-term positions because of the crisis.  It’s partly why rates from smaller lenders are now much lower than even “discounted” bank rates.