Bank of America Baffled By Billions

Why Was So Much Missed By So Many For So Long?

Just when Bank of America was set to increase its quarterly dividend and buy back some of its stock, a lower level BofA person noticed $4 billion in imaginary money shown as part of its capital.* BofA still isn’t sure why that wasn’t spotted sooner. BofA admits the 4B had been there for 4 years—or maybe 6 years. But who cares, it’s been caught.

Did PriceWaterhouseCoopers, BofA’s external accounting firm, care? Apparently not: PWC excused itself from accountability in this bungle because Bank of America was using standard and usual banking industry practices in its documentation. Evidently “standard and usual” is enough to not dig deeper by one of the world’s biggest auditors.

Does Congress care? Are you kidding? Of course it cares. The system is working great again, measured by congressional inertia: The market is up, campaign contributions are up, and there has not been a financial meltdown since 2008. Happy days are here again long enough to get by the next election.

Do consumers care? We should. The potential for another meltdown because of inadequate federal regulation of big banks is present and real. Banks battle holding as much capital as they should—let alone if any is imaginary as it was with BofA.

What should we consumers do? Email your congressional representatives to ask if they agree banks are not too big to be regulated—and if so, what changes are they fighting for in how much capital banks need to have on hand? If your representatives dodge that question, they obviously see things the way banks want them to. Then let them know you know.

Good Resources: Anat Admati & Martin Hellwig, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, Princeton University Press, 2013.

*Peter Eavis and Michael Corkery, Bank Finds A Mistake: $4 Billion Less Capital, The New York Times, Business Day, April 29, 2014, Pages B1,4.


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