State Street Boston Corp. is launching a $1 billion program of asset-backed commercial paper to fund lending by regional banks.

State Street will serve as the administrator for the program, called Clipper Receivables Corp., a special-purpose corporation backed by a Harvard University trust fund.

The bank has signed up three regional bank holding companies -- U.S. Bancorp, Portland, Ore.; PNC Financial Corp., Pittsburgh; and National City Corp., Cleveland.

State Street officials said an institution from the West Coast and one from the Southeast also plan to join the program but had not yet officially signed up. Other regional banks will eventually be allowed to join.

Lending Guidelines

Participating banks commit to make trade-related loans to investment-grade companies whose assets generate cash flows, such as retailers, utilities, telephone companies, or industrial parts manufacturers. Clipper will sell commercial paper to investors and use proceeds to fund the loan commitments.

Asset-backed paper programs have predominantly been offered by investment banks. Over the last several years, money-center banks have entered the market. Citicorp has one of the largest programs of this type. High start-up costs have barred most regional banks from offering such programs.

Bankers involved in the Clipper program say the arrangement allows them to participate in the commercial paper market, earn fees for originating the loans, and compete with bigger banks for large corporate customers without bearing the high costs of managing such a program on their own.

"This lets us enter the asset-purchase conduit in an economical way," said Paul Oldshue, senior vice president in the merchant banking division of U.S. National Bank. "It's considerably cheaper than doing it on our own."

State Street will charge the banks a fee for processing the accounting of assets. The banks will share these costs, as well as charges from rating agencies and other fees associated with running the vehicle.

Paper Chase

How asset-backed commercial paper programs work

1. A trust is formed and sells commercial paper to investors

2. A portion of proceeds of commercial paper funds bank loans

3. Principal and interest payments on bank loans or other cash flows are used to pay interest on the paper

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