Banks Abandon Plans for Subprime Bailout Fund
Major banks have abandoned plans to set up a bailout fund for subprime-related debt, mainly because not enough banks were willing to participate.
The planned fund, which was proposed in October by top U.S. banks--including Citigroup , Bank of America and JPMorgan Chase --was intended to buy the assets of ailing so-called "Structured Investment Vehicles" in order to prevent a fire sale of billions of dollars worth of shaky debt.
But a source close to the situation told CNBC that the fund is being dropped because of a lack of interest from banks in contributing to the fund and a lack of high quality assets that these SIVS were willing to sell. Many banks also are taking these SIVs on their books, making a bailout fund less necessary.
SIVs are off-balance-sheet funds used by banks to buy high-yielding assets like U.S. mortgages. They have run into trouble this year because of the meltdown in the subprime mortgage market, which has slashed the value of the debt securities held by SIVs.
Early estimates had put the bailout fund at as much as $100 billion, but that amount had dwindled to about $30 billion earlier this month.