Thursday, October 20, 2011

Banks using our money to speculate--Again!

Here we go again—using our money to speculate!
Bank of America, hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to the bank subsidiary flush with insured deposits, according to people with direct knowledge of the situation. 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.
The Moody's downgrade spurred some of Merrill's bank partners to ask that contracts be moved to the retail unit, which has a higher credit rating. Transferring derivatives also can help the parent company minimize the collateral it must post on contracts and the potential costs to terminate trades after Moody's decision, said a person familiar with the matter. BOA held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. Derivatives have been removed from the books. This allowed Merrill Lynch fee-based revenue to reach record highs this period.
Congress passed the Dodd-Frank to stop this kind of game but the Fed gave BOA an exemption in Sept 2010.