Northern Boy
18th October 2011, 23:10
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 (http://mobile.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html).
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.
Bottom Line : let the FDIC take the hit instead of BOA
http://mobile.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html
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.
Bottom Line : let the FDIC take the hit instead of BOA
http://mobile.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html