What is a significant consequence of Lehman's default on corporate commercial paper?

When Lehman Brothers defaulted on its corporate commercial paper, it sent shockwaves through the financial markets, significantly shaking investor confidence. This event demonstrated the potential risks associated with commercial paper, which is typically considered a low-risk financing method for corporations. In the aftermath, institutional investors became more cautious and hesitant to invest in commercial paper, as they reassessed the risks involved with the asset class. The default signaled that even reputable, seemingly stable companies could face insolvency, prompting investors to be more selective and scrutinizing when considering which issuers they would be willing to lend to.

The default did not lead to an increase in willingness among investors; rather, it emphasized the importance of due diligence and risk assessment. Additionally, liquidity in the commercial paper market was negatively affected, as many investors pulled back from their investments, leading to tighter credit conditions. The perception of credit risk changed dramatically, with credit risk not reducing but rather increasing as a consequence of Lehman’s default. Therefore, the hesitation of institutional investors to invest in commercial paper post-Lehman’s bankruptcy reflects a significant consequence of that event on the market.