Three Wall Street banks are expected this morning to unveil firm plans to create a $100 billion (£49 billion) bailout fund designed to avert a worsening credit crisis on Wall Street.

Citigroup, JPMorgan and Bank of America (BoA) have agreed to pool together and launch a fund that will buy risky securities backed by mortgages at risk of default.

The plan marks the biggest bailout on Wall Street since 1998, when Alan Greenspan, former Chairman of the US Federal Reserve, pushed seven American investment banks to prevent the Long Term Capital Management hedge fund from collapsing.

Although the three banks have agreed how much they will put into the fund, they were last night still trying to agree who will run it, how long it will exist, and the quality of assets that it will buy. Citigroup is putting the most into the fund.

It is understood that Henry Paulson, the US Treasury Secretary, has tried to help the three banks by urging other Wall Street institutions to join the pool.

Although Citigroup, JPMorgan and BoA are the core banks backing the fund, insiders claimed last night that HSBC and Barclays had also been contacted about whether they were prepared to join the consortium. HSBC is understood to be still considering whether to participate.

Talks began three weeks ago, after Mr Paulson asked senior bankers to devise a plan to prevent a worsening credit crisis. The three core banks suggested the $100 billion fund and discussions took place in Washington, hosted by Robert Steel, UnderSecretary for Domestic Finance.

Wall Street banks fear that as the credit crisis worsens, they will have to sell billions of dollars of securities backed by risky mortgages. That sell-off would flood the market, further depressing the price of those assets and force the banks to admit to big writedowns. As a result, banks nursing those losses would find it even harder to borrow money from each other – which would lead to financial institutions reining in mortgage and credit card lending to ordinary Americans, a move that would threaten US economic growth.

The three banks want to create a mega-fund, which would be called the Master-Liquidity Enhancement Conduit or the “M-LEC”. The fund would buy assets backed by shaky mortgages and prevent the banks from trying to sell them into the open market. Guaranteed by a consortium of the banks, it would sell its own short-term debt.

Citigroup has most at stake. It is the world’s largest holder of structured investment vehicles (Sivs). Sivs are funds that own assets backed by sub-prime mortgages, home loans made to borrowers with low incomes and bad credit histories who are more likely to fall into arrears. Sivs allow banks to invest in these shaky securities - and benefit from their higher returns - without having to account for the assets on their books. Citigroup has nearly $100 billion in seven Sivs. Globally, Sivs had $400 billion in assets at the end of August, according to Moody’s, the rating agency.

Although JPMorgan and Bank of America do not have Sivs, they will put money into the fund and charge it advisory fees.

It is thought that the UK’s Financial Services Authority has been keen to encourage British banks to take part, but it yesterday refused to comment.

The US Treasury and Barclays failed to return calls. Citigroup and HSBC declined to comment.

Times Recommends

• Darling under pressure on record public debt
• Mortgage lending falls 32% as drought deepens
• Oil prices firm after 10% drop to below $130