NEW YORK - The nation’s three largest banks said Monday that they are teaming up to create a rescue fund of sorts — potentially as large as $100 billion — to help bail out troubled global credit markets.

Citigroup Inc., Bank of America Corp., and JPMorgan Chase & Co., at the prodding of the Treasury Department, will buy distressed debt from markets roiled during the summer’s financial crisis. The joint effort is the result of more than a month of talks mediated by the government.

The plan is designed to inject more confidence into the market and increase investor appetite for the short-term debt known as commercial paper. The market for commercial paper, which is crucial for companies to fund short-term borrowing needs and which has historically been considered very safe, locked up this summer.

That followed a crisis in the mortgage industry, as people defaulted on their home loans at a skyrocketing rate. It caused a widespread aversion to risk and led the Federal Reserve to pump money into the financial system, though the latest plan relies more heavily on the banks themselves.

It was not known how much money would be put into the fund, but there have been reports it could be between $80 billion to $100 billion. Each bank will put an unspecified amount of its capital into the fund.

“The problem is festering, and I think they are trying to get ahead of it,” said professor Scott Stewart of the Boston University School of Management. “This is exactly what they should be doing — accepting responsibility instead of asking the government to bail them out.”

Treasury Secretary Henry Paulson, who met with chief executives from all three banks, said he’s pleased with the plan and “that it will have real benefits to the marketplace.”

Meanwhile, Citigroup Inc. reported a 57 percent drop in third-quarter profit, taking mortgage-backed security losses of $1.56 billion in the third quarter, more than the bank estimated two weeks ago, because home loan delinquencies accelerated in September, CFO Gary Crittenden said. And with consumer credit continuing to deteriorate, the bank’s $2.24 billion boost in loan-loss provisions was also higher than previously estimated.

Although Citigroup CEO and Chairman Charles Prince said Oct. 1 he foresaw a more “normal” profit environment in the fourth quarter, Citigroup’s comments Monday were not quite as upbeat. Crittenden said in a conference call with analysts that parts of its fixed-income holdings have weakened. “We are not optimistic they will regain a foothold in the market,” he said.

Citigroup’s net income fell to $2.38 billion, or 47 cents per share, in the July to September period. Revenue rose 6 percent to $22.66 billion from $21.42 billion a year earlier.

The government’s role in coming up with a private-sector solution to the nation’s credit problems is similar to the bailout of hedge fund Long-Term Capital Management in 1998. The Fed approached Wall Street’s biggest banks to rescue LTCM before its wrong-way financial bets set off a financial shockwave.

This time around, the banks hope to not only prevent credit problems from spreading but also to bail themselves out. Many banks operate structured investment vehicles, known as SIVs, that collectively are said to have as much as $400 billion worth of assets. Those assets could plunge in value and set off a worldwide fire sale unless the credit markets are stabilized.

The SIVs used short-term commercial paper, sold at low interest rates, to buy longerterm mortgage-backed securities and other instruments with higher rates of return. With the seizure in the credit markets, many SIVs had trouble selling new commercial paper to replace upcoming obligations on older paper.

The new bailout fund — called the Master Liquidity Enhancement Conduit or M-LEC — would launch in the next 90 days and be used to buy distressed securities from SIVs. That would in turn give them the capital to pay off their commercial paper obligations, and extricate themselves from what otherwise might have been substantial losses.

By buying SIVs’ distressed investments, the new fund would inject enough liquidity into the market to make investors more confident in buying commercial paper. The funds’ backers said they will shy away from risky instruments and buy only highly rated asset-backed debt — a market that is beginning to show signs of life.

Citigroup Chief Financial Officer Gary Crittenden said Monday that the plan “could provide reassurance to the market and make the funding of very high-quality assets a little easier.”

IN SUMMARY

What’s a structured investment vehicle? It’s a fund that’s supposed to make money by selling shortterm debt to buy long-term assets.

What happened? When investors recoiled from buying risky assets this summer, SIVs couldn’t sell new short-term debt to pay off their old short-term obligations. That raised fears they could be forced to sell their assets at steep losses to pay their debt.

How will the new fund help? Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and others will pool money to buy the distressed assets that can’t be sold in the regular financial markets.