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.
Originally posted by conspiracytheoristIAM
Maybe I'm not understanding this, but isn't this the beginning of the rapid demise of all banking systems? No one can backstop 75 trillion, let alone the Fed. The FDIC is in the hole already and can't even back up the 7 trillion of monies in the U.S. banking system. The elusive game is finally going to expose itself...the whole world can't backstop the 600 trillion in derivatives debt...can it??
that is utterly insane... you can't keep inventing money without consequences. This is nothing more that governmentally approved counterfeiting!- ATS member flice
The world's gross domestic product (GDP) is only about $65 trillion, or roughly 10.83% of the worldwide value of the global derivatives market, according to The Economist. So there is literally not enough money on the planet to backstop the banks trading these things if they run into trouble.