Conduits are one reason why State Street Corp. shares lost more than four percent of their value on Tuesday, report both the Boston Globe and Wall Street Journal. The conduits are four LLCs dubbed Clipper, Galleon, Spinnaker, and Schooner that bundle loan assets from banks and sell them to mutual funds and institutions. Roughly 40 percent of the fund industry now uses the conduits. The market's fears are likely overblown. The conduits do not hold mortgage-related assets and State Street officials told the Globe that the assets in the conduits are of high quality. The WSJ is even more blunt.

"Arlene Roberts, a State Street spokeswoman, said 'there isn't an issue' with the conduits, and said the company was 'just baffled' by interest in them," the paper reports.

"State Street's conduit program was established at the request of our clients and has been in place since 1992. The credit quality of the assets is very good -- primarily AAA/AA assets," Roberts added. "The commercial paper continues to be sold daily."  

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