Bank of America Bosses Find Friend in the Fed: Jonathan Weil

[dkf]

One of the reasons so many Americans are ticked off at the Federal Reserve is a lingering sense that it puts big banks’ interests above those of ordinary taxpayers. The news that the Fed is taking Bank of America Corp. (BAC)’s side in a dispute over where to park some of the company’s holdings only reinforces that impression.

Here’s the gist of the story, broken two days ago by Bloomberg News. Bank of America, which got hit with a credit- rating downgrade last month by Moody’s Investors Service, has moved an undisclosed amount of derivative financial instruments from its Merrill Lynch unit to its biggest commercial-banking subsidiary. The latter is loaded with insured deposits and has a higher credit rating than Merrill or the parent company.

The Federal Deposit Insurance Corp. is objecting to the transfers. That part is easy to understand: More risk for the retail lender means more risk for FDIC-insured deposits, which ultimately are backstopped by the U.S. government.

The Fed, however, has signaled to the FDIC that it favors the transfers. Shifting the derivatives to the commercial lender may let Bank of America avoid collateral calls and termination fees stemming from the rating downgrade. Some Merrill clients may prefer having their contracts with the higher-rated unit. In short, the Fed’s priorities seem to lie with protecting the bank-holding company from losses at Merrill, even if that means greater risks for the FDIC’s insurance fund.

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http://www.bloomberg.com/news/2011-10-20/bank-of-america-bosses-find-friend-in-the-fed-jonathan-weil.html

[dkf]

1. "The entire story would be playing out in secret were it not for some unidentified whistleblowers

who seem to have this crazy idea that the public should be informed about what the regulators and Bank of America are up to."

Wow makes you wonder what else we don't know.