Bailout Madness - Bank of America's Greed has no limit
A fresh outrage by Bank of America (BoA), moving to foist at least $22 trillion nominal value of Merrill Lynch derivatives onto the FDIC-insured bank unit of the unbroken-up behemoth, shows why only Glass-Steagall will work.
BoA bought Merrill Lynch in October 2008, which would have been illegal under Glass-Steagall, and cost BoA and the taxpayers $15 billion in securities losses at the time. BoA got a total of $45 billion in bailout loans, and its other prohibited-by-Glass-Steagall purchase, Countrywide Financial, got much larger bailout loans from the Federal Home Loan Banks.
In September, Moody's downgraded BoA's holding company and retail banking unit by two notches. BoA is the only U.S. lender that lacks a rating of A3 or higher among the five firms with the biggest derivatives books, listed by the Office of the Comptroller of the Currency.
Now, Bank of America has unilaterally moved its derivatives from its Merrill Lynch subsidiary, to another subsidiary which is flush with government-insured deposits, according to Bloomberg.
The Federal Reserve and the Federal Deposit Insurance Corporation disagree on the legality of the transfers. The Fed -- headed by Ben Bernanke -- wants to allow the derivatives move, to give relief to the bank holding company; the FDIC -- which would have to pay off depositors if there were a bank failure -- is objecting. BoA is taking the position that it does not need regulatory approval. Transferring the derivatives to the retail bank unit of Bank of America, thus setting the derivatives up for Federal bailout, would allow BoA to reduce the collateral it has to post on the derivatives contracts.
Moving derivatives contracts between units of a bank holding company is limited under Section 23A of the Federal Reserve Act, which is supposed to prevent non-bank affiliates from benefitting from the access to the Federal Reserve window and FDIC insurance which retail banks have.
The unrebuked action which BoA took without clearance shows the supposed "Firewall" created by the discredited Dodd-Frank to be a fraud. Dodd-Frank is no Glass Steagall; its sponsors are darlings of the banking industry. Remember Bernanke's recent comment to Sen. Bernie Sanders at the Joint Economic Committee, when asked about breaking up huge banks: "There are benefits to size."