NEW YORK, Oct 16 (Reuters) Bank of America, Citigroup and JPMorgan Chase&Co said they plan a fund aimed at preventing the dumping of billions of dollars of bonds linked to subprime mortgages and other debt.
Such sales could push debt prices lower, magnify bank losses from declining security values, and make lenders even more reluctant to extend new loans. Tighter credit could jeopardize global economic growth.
The pool by financial institutions including the three biggest US banks could help certain investment funds avoid selling assets at fire sale prices. A source said the pool could be around billion.
Treasury officials helped organize discussions to create the pool beginning last month as trouble in short-term debt markets that first arose in August persisted. But taxpayer money is not seeding the fund.
Particulars of the pool are still being worked out, and analysts cautioned it could be difficult to set up. The banks said it could be set up within 90 days.
Some critics of the fund say banks are bailing out players that made bad business decisions when setting up funds known as structured investment vehicles, or SIVs.
Citi's SIVs held some 0 billion in assets at the end of August, making the bank the largest sponsor of the vehicles in the world, while Bank of America and JPMorgan Chase&Co have had little involvement with SIVs.
''All banks are doing is rolling over their problems into a new vehicle,'' said Josh Rosner, a research analyst at Graham Fisher in New York.
JPMorgan Chase and Bank of America will receive fees for participating in the pool.
Other investors said the pool could help stabilize credit markets, most notably the market for short-term bonds known as commercial paper, where borrowing costs are still relatively high.
''I truly believe that companies should have to suffer from their bad business decisions, but the whole market could suffer if nothing were done,'' said Michael Holland, principal at Holland&Co, which oversees more than