NEW YORK (Reuters) - Ten of the world’s biggest banks on Sunday committed to establish a $70 billion borrowing facility to bolster worldwide liquidity and reduce volatility in what they called an “extraordinary market environment.”
Each bank has committed to fund $7 billion for the collateralized facility, and any one of the 10 banks would be permitted to borrow up to one-third of the total facility, the banks said in a joint statement. The financing may grow “as other banks are permitted to join,” they said.
The 10 banks are Bank of America Corp (BAC.N), Barclays Plc (BARC.L), Citigroup Inc (C.N), Credit Suisse Group CSGN.VX, Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N), Merrill Lynch & Co MER.N, Morgan Stanley (MS.N) and UBS AG UBSN.VX.
In addition, the banks said they are working together to arrange an “orderly resolution” of derivative exposures between the stricken investment bank Lehman Brothers Holdings Inc LEH.N and its counterparties.
The 10 banks said their action will be enhanced by the U.S. Federal Reserve’s decision to accept a wider array of collateral for emergency loans, including equities for the first time. The Fed also said it would broaden the collateral it would accept from investment banks for direct Fed loans.
Ben Bernanke, the central bank’s chairman, in a statement said the Fed’s actions, “along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to the markets.”
Lehman is widely expected to file for bankruptcy protection after attempts to seek buyers or a bailout failed. Bank of America is expected to announce a $44 billion purchase of Merrill, a person briefed on the matter said.
Reporting by Jonathan Stempel; Additional reporting by Glenn Somerville in Washington, D.C.;