Sheila Bair Testimony Helps Bank Of America, But Just Barely

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Bank of America got a bit of good news in the form of testimony by Sheila Bair today. Of course, it was not perfect.

F.D.I.C. chairwoman Bair told the Congressional committee investigating the merger of BofA and Merrill Lynch that though she at first doubted Bank of America needed governmental assistance but that she was eventually convinced.

“The F.D.I.C.’s board ultimately was persuaded that BofA’s condition presented a systemic risk,” Bair testified.

She also said that the F.D.I.C. was told around December 21 of last year that BofA had concerns about completing the Merrill deal, though at that point Bair continued to question whether aid to Bank of America was needed.

DealBook:  The F.D.I.C. board ultimately agreed on Jan. 15, that Bank of America’s condition posed a systemic risk that a “ring fence transaction” involving asset guarantees from the F.D.I.C. would help stabilise the situation, Ms. Bair said.

The government wanted to wall off, or “ring fence,” the risky assets in the merged Bank of America-Merrill so that insured deposits would not be affected.

An asset guarantee deal and a capital infusion were announced on Jan. 16, but the ring fence transaction was never finalised and was ultimately terminated.

Bair’s testimony could help BofA a little bit in the various suits it faces and in the Congressional inquiry. If Bair, who is not known for towing the Federal Reserve line, said BofA needed an infusion, then it sounds a bit less like BofA tried to blackmail the government for extra money by falsely threatening to get out of the Merrill deal.

Sure, it’s a very minor victory and a tiny point in the overall allegations, but, if you’re BofA, every little bit helps.

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