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Banks set up $70bn Fund for Liquidity

15 September 2008 15:41 (UTC +04:00)

A group of banks including Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. are putting up $70 billion for a borrowing fund aimed at providing liquidity.
The Federal Reserve also said it will accept other types of securities -- including equities -- as collateral for making direct loans to investment banks, according to a joint statement today. The firms plan to use the facility beginning this week.
Each participating financial firm will provide $7 billion to establish the fund and have the ability to borrow up to a third of the total. Other banks include Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co. and UBS AG. The pool could expand as other companies join.
The firms acted as Lehman Brothers Holdings Inc. prepared to file for bankruptcy protection after talks on a possible sale collapsed during the weekend. Separately, Bank of America agreed to buy Merrill Lynch for about $44 billion, a person with knowledge of the deal said, after Merrill’s shares fell more than 35 percent last week.
The firms opened the over-the-counter derivatives market for trading this afternoon to help with the ``orderly resolution’’ of Lehman’s exposures.
``These actions reflect the extraordinary market environment,’’ the statement said. Bloomberg