When we recently described in detail the reason, or rather 70.3 trillion reasons, why Citigroup scrambled to make sure the swap push-out provision language remained in the Cronybus government funding bill, we made it clear that that primary reason why at least one (and certainly two) TBTF bank is desperate to keep taxpayers on the hook for its derivatives is that between JPM and Citi, there were over $135 trillion in total notional derivatives outstanding as of Q3.
Today we find why yet another bank, Bank of America, has been extremely incentivized to preserve the post Glass-Steagall world in which cash depositing taxpayers are on the hook for a bank’s stupidity, and more impotantly, to make the uber-wealthy even uber-wealthier.
Recall that back in 2013, it was JPMorgan’s CIO Office, aka the London Whale, which, taking advantage of fungible, taxpayer-insured funding in the form of excess US deposits over loans, proceeded to attempt and corner the IG9 market in what was clearly a directional prop trade and which launched what is now a quarterly tradition of billions of non one-time, recurring legal charges for Jamie Dimon. As everyone knows by now, the London Whale trade (and its employees) blew up spectactularly and it was only a forced intervention by management which prevented impairment to the company’s depositors.
Now it is Bank of America’s turn to disclose that it, too, was being ridiculously cavalier with taxpayer-insured deposits. Only instead of traying to make money directly by letting its prop traders trade with deposit proceeds (actually, it did that too) BofA decided it would be more lucrative to use its government-backed subsidiary to “finance billions of dollars in controversial trades that helped hedge funds and other clients avoid taxes, according to internal documents and people familiar with the matter.”
According to the WSJ which broke the story, BofA had been engaging in a “practice of using funds from its U.S. banking unit to finance transactions by its European investment-banking arm that, among other things” which helped hedge funds avoid taxes on stock dividends, according to the documents and people.
The practice dates back to at least 2011, when senior Bank of America investment-bank officials in London started pushing subordinates to adopt the policy in order to take advantage of the lower funding costs enjoyed by the U.S. unit called Bank of America National Association, according to internal emails and the people familiar with