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Bank of America - Merrill Would Violate 10% Deposit Cap, Laws Snubbed by Subprime

Byline: Matthew R. Lee of Inner City Press: News Analysis

NEW YORK, September 12 -- Amid some gushing about Bank of America stepping in to scoop up subprime-damaged Merrill Lynch for $50 billion, an issue that has scarcely been raised is the law. In 1994 Congress said that no one bank should control over 10% of insured deposits in the United States. Bank of America has been at and over that deposit cap for years now. Merrill Lynch Bank USA, based in Utah, has $57 billion in deposits.  But in the subprime meltdown Bank of America's regulators, most prominently the Federal Reserve Board, allow it to skirt the law, by defining all of the deposits it buys as, well, non-deposits.

   When B of A bought the discredited subprime mortgage lender Countrywide Home Loans, the Fed decided that since Countrywide's deposits were technically in a savings bank rather than a commercial bank --  a distinction without a difference anymore, given that savings banks are now allowed to make small business loans as well -- it could approve the merger. Click here for coverage from Inner City Press.

  As an investment bank, Merrill Lynch had been unable to own a "regular" bank. So it collected $57 billion in deposits through a so-called Industrial Loan Company in Utah. These are deposits insured by the FDIC; they should count toward any common sense reading of the 10% deposit cap.

  But the issues has barely been mentioned.  If the past is any guide, the Fed has probably already given wink and nod approval to Bank of America. While the Fed has some powers to override laws it if declares an emergency, it has not made any such declaration in this case. It's just engaging in more and more routine law-bending.

Merrill Lynch: the rain has only begun to fall

  Merrill Lynch itself got directly involved in subprime, buying First Franklin from National City and holding subprime mortgage backed securities through Merrill Lynch Bank USA and yet another bank, Merrill Lynch Bank & Trust. Expect an argument to emerge that the deposits in both entities should be counted toward the 10% deposit cap, and that Merrill's as well as Bank of America's roles in the subprime meltdown should be considered and acted on.

In other financial meltdown news Lehman Brothers, owner of such subprime rogues as Aurora and Delaware Savings Bank, is declaring bankruptcy; AIG, which bought American General and its subprime business, is asking the Federal Reserve for $40 billion in loans. For year, Fair Finance Watch raised to AIG's regulator, the Office of Thrift Supervision, issues concerning AIG's subprime lending. But AIG pushed through, hiring ex-regulators as its lawyers to argue that various laws didn't apply to it. Now the OTS' largest institution, Washington Mutual, is said to be teetering. The chickens are coming home to roost, but will either the executives or the regulators be held accountable?

Watch this site, and this (UN) debate.

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Click here for a Reuters AlertNet piece by this correspondent about Uganda's Lord's Resistance Army. Click here for an earlier Reuters AlertNet piece about the Somali National Reconciliation Congress, and the UN's $200,000 contribution from an undefined trust fund.  Video Analysis here

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