Remember back in June when Bank of America reportedly reached an $8.5 billion settlement with large investors over souring mortgages? We learned earlier this month that some pretty big players weren't on board with the settlement, as AIG sued the bank to recover losses related to mortgages BOA-Countrywide had created. The bank's settlement plans with those other large investors also apparently came as a surprise to one of the biggest regulators in the U.S.: the Federal Deposit Insurance Corporation. This could get messy.
The FDIC has formally taken note of the settlement, asserting that it wants additional information. Does it fear that such a large loss write-off could endanger the bank's stability? Maybe, but that's not the concern reported today by Matthias Rieker and David Benoit at Dow Jones Newswires. They explain:
The FDIC objected as an investor rather than as a regulator of the Bank of America. It said it owns securities that would be covered by the settlement because it took over banks that failed during the financial crisis. "The reason for the FDIC's objection is that it does not have enough information to evaluate the Settlement," it said in the notice.
Let's think about all of the dimensions of this situation. First, the FDIC has bank assets it has swallowed by winding down other institutions. Some include mortgage securities that rely on loans issued by BOA-Countrywide. So a settlement will provide the FDIC with some monetary damages as it plays the part of investor.