Tuesday, October 18, 2011

HOT: BofA Caught Moving Risky Trades to Governent Insured Subsidiary

Bank of America Corp. hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation, Bloomberg reports.

According to Bloomberg, "the Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people."

Got that? The Fed is in favor BofA moving derivatives because they are risky and putting them with a subsidiary that would be covered by FDIC insurance.

Bloomberg hints at what might be going on:
“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator.
The Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades. Thanks to Sean O'Toole for the link, who writes:
Glad the fed is encouraging this. If the kids at OWS understood any of this they'd move their protest a few blocks.


  1. Thanks Bob, great stuff. An "insider" over at TFMetals reported this first probably 6 hours ago. Big trouble for BofA.

  2. It's sad that there is a 99% chance BoA will "sweep this under the rug" or pay a minimal fine despite the egregiousness of the crime.

    Crony "capitalism"/cronyism/fascism at its finest.

  3. Achtung!Never mind your hats,hold on to your wallets.

  4. "Ladies and gentlemen, I'll be brief. The issue here is not whether we broke a few rules, or took a few liberties with our female party guests - we did."
    -Otter, "Animal House", 1978
    -Brian Moynihan, Bank of America, 2011

  5. The solution is to nationalize all banks.

  6. The solution is NOT to nationalize all banks. The solution is to end .gov meddling in the banking system. Kill the FDIC and this will end overnight. Allow a banking system with two different types of banks, banks that take your money (for a small period of time) and invest it, paying you interest (like a cd) and warehousing banks. NO FDIC. If you invest in a bad bank you lose your money. Once one or two banks have lost their depositor's cash, and their executives are found subsequently hanging from lampposts, the rest of them will fall into line.

  7. BoA just got nationalized...What do you think this is? The idiot democracy mob taxpayer is on the hook for loses.

  8. Agreed w/ Anonymous 9:27. Nationalization is not the answer. We need to hold government and bankers accountable for legal transgressions. People need to be put in jail.

  9. 75 Trillion? I wonder what the real exposure is....

    Not that 75 Trillion is chump change...but if someon actually got a handle on it I'd love to see the big picture.