U.S. banks’ exposure to asset-backed commercial paper programs is manageable, both from a funding and a capital perspective, says Fitch Ratings in a new report.

Fitch notes that a number of banks have varying degrees of exposure to ABCP. But it believes these exposures won’t be a problem for the majority of institutions.

“The most vulnerable banks continue to be those with large conduits relative to asset size and a reliance on wholesale funding,” says Ian Linnell, managing director of the EMEA Financial Institutions Group at Fitch Ratings in London. “Also, while potential conduit exposures are manageable for the majority of institutions, earnings for a number of banks are likely to come under pressure, especially for those with substantial investment banking operations. Clearly, the extent of any deterioration will depend upon how long the current adverse market conditions persist.”

The total ABCP market was estimated to have outstanding amounts of US$1.4 trillion at the end of March 2007, comprising US$1.15 trillion of US ABCP and US$300 million of Euro ABCP. Some US$511 billion was held in European conduits and US$890 billion in US conduits as of end-July, Fitch estimates.

“Fitch’s bank-by-bank analysis for major liquidity providers indicates that most banks have the capital cushion to absorb these draw-downs on their balance sheet,” says James Moss, managing director of the U.S. Financial Institutions Group at Fitch Ratings in Chicago.

For some of the smaller banks, given the size of their conduits in relation to their existing capital base, capital ratios will come under pressure. However, the reconsolidation of all conduits remains an extreme worst-case scenario, it adds.