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US banks drop plan for fund to fight credit woes

"Based upon the feedback that the bank consortium and the advisor have received from domestic and global liquidity sources and from prospective SIV participants, they have determined the vehicle is not needed at this time."

Bank of America, Citigroup and JPMorgan Chase statement

Leading US banks abandoned on Friday a joint plan to create a massive fund aimed at easing the global liquidity squeeze as a result of lack of interest in the market.

Bank of America, Citigroup and JPMorgan Chase had announced in October a plan to create a single "master-enhanced liquidity conduit" to buy up troubled debt with adequate collateral.

The banks reportedly wanted to pump in between US$75 billion and US$100 billion into the fund, which would buy assets from "structured investment vehicles" (SIV), which have been hit by the credit squeeze.

But the banks, in a joint statement, said the plan would not go forward.

"Based upon the feedback that the bank consortium and the advisor have received from domestic and global liquidity sources and from prospective SIV participants, they have determined the vehicle is not needed at this time," the statement said.

The plan, which was backed by US Treasury Secretary Henry Paulson, was seen as a major effort by the private banking sector to help restore normal credit conditions after turmoil sparked by losses and a lack of confidence in subprime mortgage assets.

It was aimed at reopening credit lines for borrowers with good credit who have been hurt by fears about spreading woes from the subprime credit crisis.

The plan was facilitated by US Treasury officials in an effort to help unblock credit in the face of a squeeze that had prompted lenders to scale back many types of lending.

The fund is aimed at helping restore normal credit conditions for mortgage securities, but also for short-term corporate loans many firms need to meet payroll and other day-to-day expenses.
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