BofA Said to Split Regulators Over Moving Merrill Contracts

The inverted pyramid of global liquidity - Sources: Bank of Internation

October 18, 2011, Bloomberg/Businessweek

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. Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates. Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.

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. “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.” Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June. That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives.

Note: Remember that the GDP of the entire world is estimated at around $60 trillion,  less than JPMorgan or BofA own in derivatives. For an excellent article laying out the incredible risk this creates of a major economic collapse, click here.


For more on the high risk and cost to taxpayers of BofA moving its massive amount of derivatives to its subsidiary, click here.

For lots more from major media sources on the illegal profiteering of major financial corporations enabled by lax government regulation, click here. READ MORE