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Will New Consolidated ABCP Conduit Regulations Serve Their Intended Purpose or Stunt Economic Growth?

U.S. bank regulations recently were amended in connection with the newly released FAS 166/167 and the resulting consolidation of vehicles such as ABCP conduits. These changes removed the exclusion afforded ABCP conduits since 2004 for purposes of calculating regulatory capital and replaced it with a much more onerous amount of regulatory capital for Basel I purposes. In addition, for purposes of Basel II, the new regulation eliminated the option for U.S. bank sponsors with GAAP consolidated conduits to utilize the Internal Assessment Approach (IAA) in calculating regulatory capital. These regulations are causing significant competitive issues for U.S.-sponsored conduits, as non-U.S.-sponsored conduits are not subject to the same rules. Alternatives for U.S. banks sponsoring conduits are labor intensive, tedious, and/or expensive but will likely result in no more capital to the system and may result in decreased overall lending.