The crucial question today is whether Bank of America needs fresh capital to strengthen its balance sheet. Moynihan emphatically says it doesn’t, pointing to regulatory-capital measures that would have us believe it’s doing fine. The market is screaming otherwise, judging by the mammoth discount to book value. Then again, for all we know, the equity markets might not be receptive to a massive offering of new shares anyway, even if the bank’s executives were inclined to try for one.
Weil correctly depicts BofA as a systemic risk. And this confirms a point made by critics of so-called financial reforms, including yours truly, that the banks were not dealt harshly enough in the crisis. Both Citi and BofA were at risk of failure in early 2009. Citi at least was forced to divest many of its operations (note that isn’t an adequate remedy, since the bank is still too big to fail, but at least it is easier for managers and regulators to oversee). Bank of America, by contrast, was allowed to soldier on. The authorities have grossly underestimated the severity of the housing crisis and are still refusing to confront some of its key elements, such as the broken servicing model and chain of title problems.
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