While the predominant solution to Financial Interpretation No. 46 in the ABCP market has been the issuance of an expected loss tranche, some are questioning the actual function of these if bank administrators are going to protect the expected loss investor with the same vigor that they have historically shielded ABCP investors.

The market may be facing its first test through Citibank's handling of the Parmalat trade receivables exposure it purchased out of Eureka Securitization when the news broke that Parmalat was involved in fraud. While funding problem assets out of the conduits has been the common practice over the years, the advent of the expected loss tranche - which allows the administrator to achieve off-balance sheet treatment under U.S. GAAP - complicates the issue.

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