Buried financial news is unsettling

[unixronin]

Fed waives banking rules to allow CitiBank, BofA to loan more money through brokerage

Dislaimer:  I am not, nor have I ever been, an economist.  Nevertheless, this looks Bad to me, with a capital Bad.  This may be in part connected to BofA's recent $2 billion preferred-stock investment in Countrywide Financial, one of the biggest subprime lenders in the business (if not the biggest), which itself required a waiver from the Fed.  This new rules waiver allows BofA and Citibank to bypass the limit of 10% funding exposure, allowing them to loan up to $25 billion through brokerage — in Citibank's case, representing 30% of its total regulatory capital.

So, how serious is this rule-bending?  Very.  One of the central tenets of banking regulation is that banks with federally insured deposits should never be over-exposed to brokerage subsidiaries; indeed, for decades financial institutions were legally required to keep the two units completely separate.  This move by the Fed eats away at the principle.

(article pointed out by danjite)

Comments

[ithildae.livejournal.com]

Agreed.