In an attempt to prevent the credit crunch from doing more damage to the economy, key banks, including Citigroup Inc., are considering establishing an approximately $80 billion fund to purchase mortgage securities and other assets from struggling financial institutions, Reuters reported.

Discussions among major international banks have been organized by U.S. Treasury Department representatives, Reuters’ sources said, as financial institutions become more concerned that certain investment funds linked to banks may have to dump billions of dollars of repackaged loans onto financial markets. Taxpayer money is not expected to be used, though the Treasury Department is involved in negotiations.

The potential $80 billion fund is being set up to rescue “structured investment vehicles,” which buy assets such as mortgage securities from banks, with those purchases financed by short-term debt, known as commercial paper.

“Fire sales” of those assets could raise borrowing costs, cause significant losses for investors, force banks to write down even more holdings on their balance sheets and possibly even trigger a recession in the United States or Europe.

“Banks made unwise business decisions, and now they are scrambling to save themselves,” said Steve Persky, chief executive at Dalton Investments in Los Angeles, which has $1.2 billion under management.

Reuters’ sources said that Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. are involved in the discussions but have declined to comment.