Market predictions of strong year-end volumes for ABCP issuance in 2002 are proving true. Despite difficult economic and regulatory conditions, the market grew to $178 billion at the end of the year from the $135 billion that opened up the market at the beginning of 2002, according to figures reported by Moody's Investors Service.

"The strong performance of the European market in these difficult conditions is a testament to its resilience and investor confidence in the safety of the market," said Moody's. "European conduits continue to grow at a quicker pace than their U.S. counterparts and now account for approximately 25% of the total ABCP market."

The regulation and accounting changes that were expected to stunt growth in 2002 aren't impacting conduit growth. Basle II is expected to be implemented in 2005 and will bring new capital charges for short-term liquidity facilities as well as ratings-based risk capital calculations for liquidity lines and credit enhancement. The impact so far has been a number of alternative liquidity conduits that circumvent the charge.

And, according to Moody's, some sponsors have adjusted pricing to levels that take into account this pending charge. "The market experienced growth last year and that means that new liquidity lines were provided - highlighting the importance of this market for the European market," said one market source.

The overhauling of accounting standards has remained a point of discussion for both the U.S. and European markets given the ominous possibility that U.S. GAAP conforming sponsor banks may have to consolidate ABCP exposures back onto their balance sheets. Though the anticipation of FASB changes slowed U.S. issuance last, IAS has done little to slow the European appetite. Further, consolidation poses less of a threat to European banks because programs tend to be much smaller in size compared with U.S. conduit size. According to Moody's, several of the larger European programs are already accounted for on balance sheet.

The rating agency did add that some sponsors might begin to restructure existing programs to take changes into account, with possible changes including the syndication of support facilities and the increased use of third-party administrators.

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