Standard Chartered drops rescue

Other banks, such as Citigroup and HSBC, have stepped in to rescue their SIVs - funds that raise short-term debt to invest in longer-term securities.

SIVs face problems because the sub-prime crisis has reduced the value of many of their assets and made lenders wary.

Standard Chartered blamed the move on "deteriorating" market conditions.

The SIV, Whistlejacket Capital, appointed receivers after a decline in the value of its holdings triggered rules forcing it to wind down.

It mainly invested in financial company debt, but also invested in debt related to home loans.

Reputation undermined

Record defaults in the US housing market, particularly among sub-prime borrowers with poor credit histories, have led to big losses on mortgage-related debt.

Mark Harmer, head of credit research at ING, said Standard Chartered's decision was unlikely to have a significant financial market impact, but it did threaten to undermine the bank's reputation.

"It is certainly a reputational thing. I'm surprised that they haven't pulled out all the stops to try to get some sort of liquidity backstop in place," said Mr Harmer.