A consortium of U.S. banks today announced an agreement in principle to create and provide liquidity support to a master conduit to enhance liquidity in the market for asset-backed commercial paper and medium-term notes issued by structured investment vehicles.

Recently, refinancing in the ABCP markets has been difficult despite the high quality collateral underlying many of these securities. The objective of this effort is to facilitate these re-financings and to complement other market-based solutions in supporting an orderly and efficient market environment.

Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and several other financial institutions have reached an agreement in principle to create a single master liquidity enhancement conduit (M-LEC). Once established, M-LEC will agree, for a set period of time, to purchase qualifying highly-rated assets from certain existing SIVs that choose to use this new source of liquidity. Access to liquidity is intended to allow participating sellers to meet pending redemptions and facilitate ABCP rollovers, the banks said.

M-LEC will issue new short-term credit instruments to finance its purchase of eligible assets from participating sellers. The three major banks and other participating firms will coordinate on a process, the terms of which are still being finalized, for determining asset eligibility for M-LEC. A syndication process is currently underway to identify the liquidity backstops to include several additional financial institutions, in order to scale M-LEC to a size and funding structure deemed appropriate by the consortium. M-LEC could be operational within 90 days. Multiple investment management firms have been engaged in discussion with the consortium and expressed support for the plan.

The U.S. Department of Treasury facilitated the discussions among the consortium of banks and investment managers.