Major US banks announce plan to ease credit squeeze

WASHINGTON : Three major US banks announced a plan on Monday to ease the global liquidity squeeze with a massive fund for mortgage securities and short-term corporate loans hurt by tighter credit conditions.
Bank of America, Citigroup, JPMorgan Chase and several other financial institutions said they reached an agreement in principle to create a single "master liquidity enhancement conduit" to buy up troubled debt with adequate collateral.
The amount of the new fund was not immediately disclosed, but the Wall Street Journal reported the banks would pump in as much as US$100 billion. The Financial Times said the amount would be some US$75 billion.
The move prompted by the US Treasury was seen as a major effort by the private banking sector to help restore normal credit conditions after turmoil earlier this year sparked by losses and a lack of confidence in sub-prime mortgage assets.
It was not immediately clear which other institutions would participate in the plan or how it would work, but it is aimed at reopening credit lines for borrowers with good credit who have been hurt by fears about spreading woes from the sub-prime 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.
The three banks said that refinancing in the asset-backed commercial paper markets "has been difficult despite the high quality collateral underlying many of these securities," and that the new fund would help facilitate refinancing of these loans.
The new consortium may be operational within 90 days, according to the three banks.

<------------- why did DJIA slides more than 100 points today then?