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Without regulatory permission, Bank of American on October 18th has moved potentially trillions of dollars worth of European derivatives into their depository arm to give it access to the Fed window, and backstopping by the FDIC and US taxpayers.

This move by Bank of America and its investment arm, Merrill Lynch, is an attempt to remain solvent, and hope for a bailout of its failed investments by the Fed and Treasury Department as the banking crisis in Europe threatens their balance sheets.

This story from Bloomberg just hit the wires this morning. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to "give relief" to the bank holding company, which is under heavy pressure. – Daily Bail

Bank of America is not the only financial institution attempting to use the taxpayers as a backstop to protect their potential losses, as according to Bloomberg, JP Morgan is also moving up to $79 Trillion in European backed derivatives to where they will be guarnteed by the FED, and the FDIC. [!!!!!!!!!]

It appears that the banks are relying on the Too Big To Fail mentality of the Teasury Department, and the legislators in Washington to have little choice but to institute a bailout of massive proportions should these derivatives be called in for Euro failures. Only this time, the cost would be 10 times the amount taxpayers spent bailing out institutions during the 2008 credit crisis.

For the American people, these moves by Bank of America and JP Morgan should be severe warnings to just how bad the global credit crisis is becoming, and the potential for over $100 trillion in derivatives to be thrust on the US taxpayers. It is ironic that Merril Lynch once again is the center of controversy for too big to fail, but this time, there may not be enough dollars in circulation to save the banks should the worst case scenario come to pass.

kingdrex's picture
Oct. 21, 2011 10:18 am


It's a move to put the derivative bets under the umbrella of the FDIC. Another taxpayer bailout in the making.

The Obama Admin.refused to re-instate laws prohibiting bankster gambling. Afterall,,there's a billion bucks to be raised for the 2012 presidential campaign...

Here’s a clip from the Bloomberg article:

“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 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. The bank doesn’t 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.” (“BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit”, Bloomberg)

There are two things worth noting in this article. First, according to Bloomberg, “the transfers (of derivatives) are being requested by counterparties.” Well, how do you like that? In other words, the investors on the other side of these contracts want Merrill to put them under an insurance umbrella provided by the FDIC."

Full article here:

Government of, by and for banksters, financiers and transnationals is doing exacty what it was hired to do. Why are people surprised?.

Retired Monk - "Ideology is a disease"

Jul. 31, 2007 3:01 pm

Why are people surprised? Because they don't pay attention to such details. They think everything is fine until it is too late. B of A should go away but our politicians and business leaders will tell you that would do irreparable harm to the country and economy. They did the same thing when the public was overwhelmingly opposed to the bailout in 2008. But that is the medicine that has to be taken otherwise you're just slapping a bandage on the problem and hoping it goes away.

captbebops's picture
Jul. 31, 2007 3:01 pm

How in the hell can you insure or guarantee a bunch of casino bets? Isn't that the whole point of making a wager? The risk of losing offsets the chance of winning. If it's guaranteed or insured then it's not really a risk.

Bush_Wacker's picture
Jun. 25, 2011 6:53 am

I guess you haven't heard about Whiskey Pete's.

Or, Casino Aztar which is also licensed to use the fictitious name "City of Evansville" in Indiana.

leighmf's picture
Jul. 31, 2007 3:01 pm
Quote Bush_Wacker:

How in the hell can you insure or guarantee a bunch of casino bets? Isn't that the whole point of making a wager? The risk of losing offsets the chance of winning. If it's guaranteed or insured then it's not really a risk.

Unfortunately, if the loser of the bet doesn't have the money to pay the winner, the taxpayer is the payee of last resort...or the financial system melts down. Currently, global "bets" that financial paper or commodities will go up or down are in the $600 trillion range. About ten times the entire economic output of the globe.

Those folks need even they can create jobs....for bankruptcy attorney's and foreclosure specialists..

Retired Monk - "Ideology is a disease"

Jul. 31, 2007 3:01 pm

It also goes to show that, just like this analogy to the gambling industry, since this 'economy' is now more geared to 'derivative betting' that 'production of goods and services', just as in real gambling, the institution that gets to make the house rules never loses money--it just adjusts it payouts. The banking industry in conjunction with the complicity of government functions in 'making the house rules' in this 'gambling game'....and, as polycarp points out, the taxpaying consumer will once against be holding the bag thanks to the FDIC guarantees that were supposed to go to commercial banking (and the interchange of real goods and services) instead of the 'speculative gambling' of the investment banks--but the Glass-Steagall regulation that separated the two was removed by Gramm-Leach-Bliley--with predictable results that will happen again as long as 'financial speculative gambling' is the order of the day and the same house keeps 'the house rules' in it....

Kerry's picture
Jul. 31, 2007 3:01 pm

Impeachment: The Difference Between Nixon & Trump

Thom plus logo There is a very simple reason why some Republicans participated in the impeachment proceedings against Richard Nixon, but none have so far broken ranks against Trump. That reason is the US Supreme Court.
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