conduit business definition

A financial vehicle that holds asset-backed debt such as mortgages, vehicle loans, and credit card receivables, all financed with short-term loans (generally commercial paper) that use the asset-backed debt as collateral. The profitability of a conduit depends on the ability to roll over maturing short-term debt at a cost that is lower than the returns earned from asset-backed securities held in the portfolio. Financial institutions establish and operate conduits in order to generate fee income without booking assets that require reserves. Short-term lenders to a conduit are generally protected with backup credit lines from the financial institutions. See also structured investment vehicle.