US banks to create debt fund

Major financial firms sign deal aimed to buy distressed assets from each other.

    The banks' move was encouraged by the
    US treasury [AP]

    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 subprime 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 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.

    Refinancing

    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.

    "Multiple investment management firms have been engaged in discussion with the consortium and expressed support for the plan," according to a joint statement.

    The US treasury said in a statement it was "pleased with the response by the private sector to enhance liquidity in the short term credit markets."

    SOURCE: Agencies


    YOU MIGHT ALSO LIKE

    Interactive: How does your country vote at the UN?

    Interactive: How does your country vote at the UN?

    We visualised 1.2 million votes at the UN since 1946. What do you think are the biggest issues facing the world today?

    'We were forced out by the government soldiers'

    'We were forced out by the government soldiers'

    We dialled more than 35,000 random phone numbers to paint an accurate picture of displacement across South Sudan.

    Interactive: Plundering Cambodia's forests

    Interactive: Plundering Cambodia's forests

    Meet the man on a mission to take down Cambodia's timber tycoons and expose a rampant illegal cross-border trade.