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Bank of America: Too Big and Too Frail?

January 27, 2012

BALTIMORE - A petition from consumer group Public Citizen says Bank of America is so big and frail that regulators should dismantle it before problems at the huge bank provoke a crisis.

The economists, law professors and former regulators behind the call say there is a real chance that the nation's second-largest bank could implode, dragging the world economy down with it.

David Arkush, director of Public Citizen's Congress Watch division, says BOA's stock has fallen by 90 percent off its peak because the market thinks the bank's liabilities could be as much as three times its total capitalization.

"It has assets equal to roughly one-seventh of the U.S. GDP. It's an enormous behemoth. It's too large and complex to manage or regulate properly. Its financial condition is poor and could deteriorate rapidly."

BOA took on billions in toxic assets when it bought troubled mortgage giant Countrywide and broker Merrill Lynch. According to Bill Black, a University of Missouri-Kansas City law professor and former bank regulator, much of the junk had been passed on to investors, who could force BOA to take it back.

"If they are required to buy back any substantial portion of the toxic waste they sold to others, then they will be not simply insolvent but extraordinarily insolvent."

In the past few years, the biggest banks have gotten larger and more interconnected, making "too big to fail" an even bigger problem than when the financial crisis started. But according to Dean Baker, co-director of the Center for Economic and Policy Research, last year's Wall Street reform offers a way out.

"We have to establish a financial system where we don't have banks that are too big to fail. The great thing about the financial-reform law, the Dodd-Frank bill passed last year, was that that does give us a clear mechanism that gets us out from this 'too big to fail' situation."

North Carolina-based BOA has branches and mortgages in every state, including Maryland. The bank reported profits in the past two quarters and claims to be working through its problems. Critics say the profits were attributable to accounting adjustments and one-time asset sales.

More information is online at citizen.org.

Dan Heyman/Deb Courson Smith, Public News Service - MD