NEW YORK - The U.S. regulator's eligibility criteria for ABCP liquidity may be less of a minefield for arbitrage conduits than previously anticipated, depending largely on the U.S. regulators' implementation of Basel II, according to speakers and chatter among attendees at last week's seminar on the topic, hosted by the ABCP group at Credit Suisse First Boston.

Essentially, an ABCP facility as risk weighted under Basel II's Internal Assessment Approach (IAA) may yield better economics than applying the U.S. regulators newly published standardized approach. While U.S. regulators apply a 10% credit conversion factor to eligible liquidity (effective September 2004, with a one-year grace period), the cost of securing the 10% CCF could outweigh the benefits. Moreover, the option to use the standardized approach may not exist for many of the banks providing ABCP liquidity.

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