Reader Michael M called our attention to this statement in a Financial Times article:
The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries.
Was this the quid pro quo for Band of America buying Merrill? If so, the repercussions extend beyond BofA. This is a time when the federal authorities need to be vigilant, not lax about banks taking risk with depostors’ funds.
Note than many banking experts, post the S&L crisis and now, recommend the reverse, “narrow banking”, which requires banks to invest depositors’ funds only in the very safest assets. This is the exact opposite of the sort of regulatory measures needed to improve the health of the banking system. Expediency trumps soundness.
Any reader inputs appreciated.