Banks move to help credit markets

updated 9:15 a.m. ET Oct. 15, 2007

NEW YORK - The nation’s three largest banks on Monday said they will team up to buy securities hurt during the summer’s mortgage turmoil and revive troubled credit markets.

The Treasury Department introduced the idea of a bailout in recent talks with Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co and others. It was not known how much money would be put into the fund, but there have been reports it could be between $80 billion to $100 billion.

The banks said they hope to have the fund, called the Master Liquidity Enhancement Conduit or M-LEC, in operation within the next 90 days. Its primary focus will be to buy troubled assets from bank-run “structured investment vehicles.”

Those so-called SIVs, which are held off of the banks’ balance sheets, used short-term debt called commercial paper to buy longer-term mortgage-backed bonds and other securities. These investments lost value as credit markets stalled, making it more difficult for the SIVs to sell commercial paper.

The idea is that the fund will inject enough liquidity into the market to make investors more confident in buying commercial paper, which many companies need to sell in order to finance short-term expenses like payroll.

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