Citigroup, Bank of America and JPMorgan Chase announced plans to raise a fund of up to $80 billion in a bid to boost liquidity and combat the continuing credit crunch.
The fund will buy securities backed by high-risk “sub-prime” mortgages and other assets from “structured investment vehicles”, which are affilitated to the banks but do not sit on their balance sheets.
The so-called master liquidity enhancement conduit, or M-LEC, will buy assets from these vehicles, known as SIVs, which collectively have about $320 billion in holdings. This would help them to avoid fire sales in a move that would tighten the credit markets further.
The fund was set up after the Treasury approached America’s biggest banks last month after a shutdown of the commercial paper