Bank of America, Citigroup and J P Morgan reach agreement on $75-billion SIV backup fund

The Bank of America, Citigroup and JPMorgan — the three biggest US banks — have agreed on the structure of a fund worth at least $75 billion to help stabilise credit markets, The New York Times has reported.

The proposed fund could begin operating as early as the end of December. The banks will begin to ask about 60 financial institutions to contribute money in the second half of November.

The plan requires approval by the major credit-rating companies, and the banks are still negotiating a fee structure of between 0.75 to 1 per cent. The agreement, reached late on Friday 9 November, came at the end of two months of negotiations.

The fund won''t require structured-investment vehicles (SIVs) to obtain approval of at least 75 per cent of their investors if they want to participate. Reports also indicated that the fund won''t distinguish between the risk levels of different SIV assets.

The fund''s impact is unclear, however, because the debt markets have worsened, investors are shunning asset pools, and SIVs are already trying to unload the securities they hold on the assumption that the new fund will not work.