Treasury officials seek to help battered SIVs

By Neil Shah and Patrick Rucker

NEW YORK (Reuters) - Treasury officials are looking into ways to help investment vehicles called SIVs that have been battered by this summer's credit crisis, sources familiar with the situation said on Friday.

Big banks, including Citigroup Inc, are discussing a plan to pool together and financially back as much as $100 billion in these investments, which include mortgage securities, the Wall Street Journal reported on its Web site.

Treasury representatives met about two weeks ago with sponsors of these vehicles, Wall Street banks and investors to discuss "how to alleviate some of the issues in the SIV market," one source informed of the meeting by participants said.

SIVs are investment vehicles that raise cash by issuing short-term debt called commercial paper and use the proceeds to buy higher-yielding securities, often tied to U.S. mortgages. The vehicles, often set up by banks, make money by pocketing the difference between their funding costs and investment returns.

One plan that was discussed at the meeting involved setting up a "super fund" where "each SIV in the market could pledge up to one-third of its assets and get financing," the source said.

A government source also confirmed that there is a Treasury initiative to ease funding costs in the SIV market.

The plan could also get backing banks outside the United States. The Financial Services Authority, the United Kingdom's markets regulator, has suggested that UK banks consider participating in the plan, the Wall Street Journal reported.

The fund, which is tentatively called Master-Liquidity Enhancement Conduit, or M-LEC, could be announced as early as Monday, if banks agree, the Journal reported.