Who Needs Regulators: Banks Establish $70 Billion Loan Program to Protect Liquidity


Update: The Dow ended up closing down 504 points for the day

The past 24 hours have been about as chaotic a time as Wall Street has seen since Black Monday or possibly the Great Depression. Here are a few highlights:

  • We’ve seen one of the top investment banks fail to secure a bidder and file for bankruptcy
  • We’ve seen Merrill Lynch essentially forced to be acquired by Bank of America for $50 billion in stock
  • We’ve seen shares of AIG fall 80% today (World’s Largest Insurer)
  • We’ve seen WaMu shares fall down 25% to a market cap close to $3 billion
  • With 40 minutes left in trading, the DOW Industrials are down 399 points or 3.5%
  • Alan Greenspan called this a once in a century crisis.

With all that going on, what else could be happening?

A Consortium of 10 Banks Has Established a $70 Billion Loan Program to Protect Liquidity

According to the AP:

The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs.

The banks said the program will be available to participating banks which can get a cash infusion up to a maximum of one-third of the total size of the pool. The size of the loan program might increase as “other banks are permitted to join.” All participating banks intend to use this facility beginning this week, the statement said.

The banks also include Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS.

Could this action from the banks help preserve their own future and that of other banks?
Personally, I think it is a great idea and hope that other major banks jump in and help pool funds to build the loan program. It is forward thinking like that which has been absent from the financial institutions for some time. Perhaps the banks can save themselves — we see that Washington failed to save Lehman — seems that there are few other options left.

Any Thoughts?

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


  1. 10 major Wall Street banks felt they better pool some money together – and created a $70 billion fund – just in case they need some of it to save themselves.

    These are extraordinary times. I applaud Fed for not coming to the rescue of Lehman Brothers. Although Barclays were willing to salvage Lehman Bros, Fed knew that they were asking for guarantees, i.e. blank cheque from the Fed. Then there was Merrill in the line with the same begging bowl… and only God (or Fed) knows who else.

    Today’s capitals Markets are quite capable of sorting themselves out. Central bankers can not bailing everyone out. So Fed’s decision was correct.

    Now the blame game: sooner or later it will start. People will be pointing fingers at those responsible for these calamities. Who will the history hold responsible for all this?

    Will it be Fed – for allowing easy credit in the first place? Will it be politicians for not taking actions early enough? Banks? Consumers? Or the combination of all?

    – Peter

  2. Surviving Black Monday: 9/15/08 & the months of financial crisis sure to follow – How will investors, homeowners and productive Americans in the private sector survive the tidal wave of collapsing real estate prices, investment markets, vanishing financial institutions like Merrill Lynch, Lehman, AIG, Freddie Mac, Fannie Mae, Washington Mutual? This nightmare on Wall Street combined with the real estate, mortgage and credit crisis threatens our homes, jobs and small businesses, investments and retirement plans.

    On top of this, we have politicians of both parties claiming to have solutions when they don’t even know enough about the credit crisis, the dollar, the Federal Reserve, markets and complicated financial instruments to even talk intelligently about the problem or solutions.

    Finally this is an election year and the only guarantee is Herbert Hoover Bush will be succeeded by presidential and congressional candidates of both parties who know nothing about business or Wall Street who have spent their careers feeding at the trough of tax revenues taken from working Americans.

    Today, what should freedom loving, productive Americans do to defend their homes, retirement plans and investment security from the Wall Street establishment who have failed to provide us reasonable solutions and advice or the Washington bureaucrats who were supposed to protect us with regulatory oversight.

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