The freezing of the auction-rate securities market — and the resulting regulatory response — is fast becoming the crisis of the day for large global financial-services companies.

In just the past few days, a number of banking giants blinked first in their showdowns with regulators and agreed to plunk down fines and huge sums to buy back the securities from investors who wrongly thought they were buying liquid, very short-term investments.

Late Friday the Securities and Exchange Commission announced that UBS Securities LLC and UBS Financial Services Inc. agreed in a settlement to repurchase more than $21.5 billion in auction-rate securities from UBS customers, make no-cost loans to UBS customers until the bank is able to liquidate their ARS holdings, and submit any customer claims for damages to arbitration under the oversight of the Financial Industry Regulatory Authority.

Late Thursday Merrill Lynch said that beginning January 15, 2009, it will buy, at par, ARS that it sold to its retail clients. Merrill said these clients currently hold an estimated $12 billion in ARS. It expects this sum to be reduced to under $10 billion by January 2009 as a result of issuer redemptions.

“Our clients have been caught in an unprecedented liquidity crisis,” said John A. Thain, chairman and chief executive officer. “We are solving it by giving them the option of selling their positions to us.”

In addition, Citigroup has agreed to buy $7.3 billion of debt from individual investors, pledged to help 2,600 institutional customers unload $12 billion of securities, and said it will pay $100 million in fines.

Bank of America Corp. analyst Jeffrey Rosenberg estimates that banks that purchase the auction-rate debt may have to write it down by a total of $4 billion, according to Bloomberg.

Meanwhile, Bank of America itself has said two subsidiaries have received subpoenas and requests for information from various state and federal governmental agencies regarding ARS. In the same regulatory filing, the financial-services giant said that beginning in April 2008, the corporation and Bank of America NA received subpoenas, interrogatories, and/or civil investigative demands from the attorneys general of a number of states requesting documents and information regarding municipal derivatives transactions from 1992 through the present.

The corporation and Bank of America NA are cooperating with the state attorneys general, it added in the filing.

Likewise, Bank of New York Mellon Corp. revealed in its quarterly report on Friday that the SEC is probing its ARS transactions. In the report filed with the agency, the New York–based company said it told the SEC that its Mellon Financial Markets LLC unit placed orders on behalf of issuers to purchase their own ARS. Bank of New York said it is cooperating with the SEC investigation.

Clients are also suing the financial giants. For example, STMicroelectronics NV, Europe’s largest computer-chip maker, has sued Credit Suisse for allegedly placing $450 million of its cash into ARS without authorization, according to Reuters.

“At least a dozen other multinational corporations are victims of the same scheme carried out by the same group of brokers and directors at Credit Suisse Securities and furthered by Credit Suisse,” STMicro reportedly claimed in its lawsuit.

According to Reuters, STMicro said it believed more than $2 billion of these clients’ money ended up invested in ARS.