Commercial paper posted its biggest weekly plunge ever, as banks sold more long-term debt instead to finance their operations.
The amount of commercial paper outstanding in the market dropped by $98.8 billion to a seasonally adjusted $1.59 trillion in the week ended Wednesday, after falling in the previous two weeks.
Financial companies contributed to $93.5 billion of the weekly drop.
Miller Tabak & Co.'s Tony Crescenzi noted that last week, Citigroup issued $12 billion in securities backed by the Federal Deposit Insurance Corp. while General Electric Co. issued $20.9 billion; JPMorgan Chase & Co. issued $17.9 billion; and Bank of America Corp. issued $19.9 billion.
"Banks that raise capital through the FDIC's program can cut their short-term borrowing, a desirable goal in the current environment where excessive reliance upon short-term funding is extremely risky, as a few large firms have found out," Crescenzi wrote in a note.
Issuing commercial paper used to be a popular way for companies to borrow money for short periods to fund their day-to-day operations.
The Fed started buying highly rated, three-month commercial paper on Oct. 27 to prop up a market that saw demand fall off after Lehman Brothers Holdings Inc. collapsed. The FDIC later started guaranteeing bonds sold by financial companies.
Before Lehman's bankruptcy, there was more than $1.8 trillion in commercial paper outstanding in the market, and about $2.2 trillion at the market's peak in the summer of 2007.