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US Banks Set Up Rescue Fund to Ease Credit Crunch

Reuters
Monday, 15 Oct 2007 | 11:34 AM ET

Citigroup, Bank of America, JPMorganChase and other banks said they were setting up a fund to support investment funds that might otherwise have to sell billions of dollars of assets.

The fund is meant to bolster funds known as structured investment vehicles, which have had trouble refinancing their debt recently and in the worst case scenario would have to sell their assets to pay off investors.

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The banks said they were still working out the size of the fund and the way it is put together.

The fund, known as the master liquidity enhancement conduit, or M-LEC, will agree to buy qualifying assets from structured investment vehicles.

The fund will then issue short-term credit instruments to help finance its purchase of assets.

U.S. Treasury Gives Blessing

U.S. Treasury on Monday gave its endorsement to a new, multi-billion dollar investment fund that will buy troubled loan products that have recently been shunned by investors.

The fund, which could be worth $100 billion and is backed by some of the world's largest banks, was conceived with the help of Treasury officials.

"The joint efforts of domestic and international financial institutions, broker dealers, and investors have resulted in a potential structure to improve liquidity in the asset backed commercial paper markets," the Treasury said in a prepared statement Monday.

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