NEW YORK - US banks JPMorgan Chase and Morgan Stanley joined other large banks on Thursday in agreeing to buy back billions of dollars of stressed securities from investors, New York officials said.

New York state attorney general Andrew Cuomo brokered a settlement with the two banks which compels them to collectively return over US$7 billion (S$9.87 billion) to investors.

The deals cover so-called auction rate securities which the banks marketed heavily to individual investors, charities and small and mid-sized businesses.

Regulators claim the banks marketed the securities as being highly liquid and as accessible as cash, but they said the securities were in fact tricky to redeem and are not as easily accessible as cash holdings.

'The industry is taking responsibility for correcting a problem they helped create, and that's a good thing', Mr Cuomo said.

The settlements with JPMorgan Chase and Morgan Stanley resolve allegations that the two finance firms had made misrepresentations in marketing the securities to investors.

JPMorgan Chase agreed to pay a civil fine of US$25 million as part of its agreement with Mr Cuomo's office while Morgan Stanley will pay a fine of US$35 million.

'The fundamental goal has been to return money into the hands of investors, and that's what these deals do', New York's top law enforcement official said.

US banks marketed billions of dollars' worth of the complex securities in recent years, but the market for auction rate securities imploded in February amid a broadening credit crunch that contributed to the collapse of the Bear Stearns investment bank in March.

Auction rate securities, essentially debt instruments issued by financial firms, municipalities and student loan companies, typically have a fairly lengthy maturity. But the interest rates on such securities can change at auctions run by the banks.

Many investors were left nursing losses after the market for the securities collapsed earlier this year.

Citigroup and Swiss bank UBS have already agreed with regulators to buy back billions of dollars of the stressed securities while Merrill Lynch opted voluntarily to repurchase securities it had marketed.

Mr Cuomo said large banks, which had reached settlements with regulators, had now agreed to repurchase over US$27 billion of the tainted securities.

The New York attorney general and federal regulators are also probing other banks that marketed the securities. -- AFP