Maybe this time, those of us on the right and left will finally say NO!
Bloomberg:
Bank of America Corp. (BAC), 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.
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. The bank doesn’t believe regulatory approval is
needed, said people with knowledge of its position.
Three years after taxpayers rescued some of the biggest
U.S. lenders, regulators are grappling with how to protect FDIC-
insured bank accounts from risks generated by investment-banking
operations. Bank of America, which got a $45 billion bailout
during the financial crisis, had $1.04 trillion in deposits as
of midyear, ranking it second among U.S. firms.
“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. “We should
have fairly tight restrictions on that.”
A little bit of non-lefty analysis?
DailyBail:
This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank
of America didn't get regulatory approval to do this, they just did it
at the request of frightened counterparties. Now the Fed and the FDIC
are fighting as to whether this was sound. The Fed wants to "give
relief" to the bank holding company, which is under heavy pressure.
This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You
will also read below that JP Morgan is apparently doing the same thing
with $79 trillion of notional derivatives guaranteed by the FDIC and
Federal Reserve.
What this means for you is that when Europe finally implodes
and banks fail, U.S. taxpayers will hold the bag for trillions in CDS
insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown
because Wall Street successfully lobbied during Dodd-Frank passage so
that no central exchange would exist keeping track of net derivative
exposure.
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