Here's the gist of what might be at odds with the BAC attempt at bank fraud:
“Congress doesn’t want a bank’s FDIC insurance and access to the Fed discount window to somehow benefit an affiliate, so they created a firewall,” Omarova said. The discount window has been open to banks as the lender of last resort since 1914.
As a general rule, as long as transactions involve high- quality assets and don’t exceed certain quantitative limitations, they should be allowed under the Federal Reserve Act, Omarova said.
In 2009, the Fed granted Section 23A exemptions to the banking arms of Ally Financial Inc., HSBC Holdings Plc, Fifth Third Bancorp, ING Groep NV, General Electric Co., Northern Trust Corp., CIT Group Inc., Morgan Stanley and Goldman Sachs Group Inc., among others, according to letters posted on the Fed’s website.
The central bank terminated exemptions last year for retail-banking units of JPMorgan, Citigroup, Barclays Plc, Royal Bank of Scotland Plc and Deutsche Bank AG.
The Fed also ended an exemption for Bank of America in March 2010 and in September of that year approved a new one.Section 23A “is among the most important tools that U.S. bank regulators have to protect the safety and soundness of U.S. banks,” Scott Alvarez, the Fed’s general counsel, told Congress in March 2008.
To contact the reporters on this story: Bob Ivry in New York at bivry@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net; Christine Harper in New York at charper@bloomberg.net.
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Here's the letter itself:
http://www.federalreserve.gov/federalreseract20100903.pdf-----------------
From which, if cut-and-paste agrees---- and it does not, dammit... --- so hopefully typed:
"BANA has agreed not to purchase any low-quality assets as part of this proposal. In addition BAC has made the following commitments to ensure the quality of the assets transferred to BANA:
1) BANA commits for a four year period.... (a list of Transferred Assets capitalization and liquidity requirements culminating in this amazing stinger)...
For example, under this dollar for dollar capital requirement, the risk-based charge for each low-quality loan would be 100 percent (equivalent to a 1250 percent risk weight) that would apply to a similar defaulted loan asset that is not part of the transferred asset pool."
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BAC's allocated capital pool is constrained, even after troubled assets return to performing status. Those constraints are in place legally today.
Those restrictions on the BAC allocated capital pool apply to the whole of the allocated capital pool for the whole of the four years.Derivatives, of course, are worse than low-quality loans as they are bets. They are not preferred payment slices/tranches of real income streams. They are bets.
There is no backing.
Trying to change the numbers in a capital pool by off-loading derivatives ??? Imagining that FDIC will cover Goldman Casino bets ???
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Whatever they are smoking, I'd like to try it once before I get too senile to recall enjoying it.