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BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit
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 werent 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 doesnt 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.
Accommodating Clients
Jerry Dubrowski, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment on the transfers or the firms discussions with regulators. The company continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA, he said in an e-mailed statement, referring to the companys deposit-taking unit.
Barbara Hagenbaugh, a Fed spokeswoman, said she couldnt discuss supervision of specific institutions. Greg Hernandez, an FDIC spokesman, declined to comment.
Bank of America posted a $6.2 billion third-quarter profit today, compared with a loss of $7.3 billion a year earlier, as credit quality improved and the firm booked one-time accounting gains. The lender rose 7.3 percent to $6.47 at 1:54 p.m. in New York trading, making it the days best performer in the Dow Jones Industrial Average. Credit-default swaps on Bank of America eased 10 basis points to a mid-price of 380 as of 11:49 a.m. in New York, according to broker Phoenix Partners Group.
read more BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit - Bloomberg
BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit
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 werent 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 doesnt 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.
Accommodating Clients
Jerry Dubrowski, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment on the transfers or the firms discussions with regulators. The company continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA, he said in an e-mailed statement, referring to the companys deposit-taking unit.
Barbara Hagenbaugh, a Fed spokeswoman, said she couldnt discuss supervision of specific institutions. Greg Hernandez, an FDIC spokesman, declined to comment.
Bank of America posted a $6.2 billion third-quarter profit today, compared with a loss of $7.3 billion a year earlier, as credit quality improved and the firm booked one-time accounting gains. The lender rose 7.3 percent to $6.47 at 1:54 p.m. in New York trading, making it the days best performer in the Dow Jones Industrial Average. Credit-default swaps on Bank of America eased 10 basis points to a mid-price of 380 as of 11:49 a.m. in New York, according to broker Phoenix Partners Group.
read more BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit - Bloomberg