labels: financial services, economy - general, banks & institutions
US banks set up bail out fund for investment vehicles news
17 October 2007
Mumbai: Three biggest banks of the US, including Citigroup and Bank of America Corp, are planning to create a fund to prevent the sell-off of billions of dollars of bonds linked to subprime mortgages and other debt.

The banks are pooling around $80 billion to stave off the risk that certain investment funds would have to dump assets at dirt cheap rates.

Forced sales could push debt prices lower, magnify bank losses from the credit crunch, and make lenders even more reluctant to extend new loans. Tighter credit could also jeopardise economic growth.

Citi''s SIVs held some $100 billion in assets at the end of August, making the bank the largest sponsor of the vehicles in the world, while JPMorgan Chase and Bank of America have had little involvement with SIVs.

JPMorgan Chase and Bank of America will receive fees for participating in the pool.

HSBC, one of the largest SIV sponsors, is considering joining the pool, a source said. HSBC declined to comment.

SIVs controlled some $370 billion of assets as of September 14, and some have had trouble refinancing their debt recently.

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US banks set up bail out fund for investment vehicles