PhotoBank of America, the second-largest bank holding company in the U.S., should be broken up and reformed, Public Citizen said in a petition to the Federal Reserve and the Financial Stability Oversight Council.

Public Citizen also sent a separate letter to financial regulators co-signed by 19 individuals, including economists and legal scholars, and by Americans for Financial Reform, Center for Media and Democracy, Demos, National People’s Action, Neighborhood Economic Development Advocacy Project, New Bottom Line, SAFER and U.S. Public Interest Research Group.

The letter calls on regulators to investigate any threats posed by Bank of America or other large and complex financial institutions commonly known as “too big to fail” and to take all actions necessary to safeguard financial stability.

Public Citizen’s petition calls on regulators to use authority granted by section 121 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to reform Bank of America into a set of smaller, simpler and safer institutions.

Too complex

Bank of America, which holds assets equal to roughly one-seventh of the country’s gross domestic product, is too large and complex to manage or regulate properly, the petition said. Moreover, its financial condition is poor and could deteriorate rapidly.

Near- and long-term financial indicators demonstrate the market’s unease with Bank of America and show that the bank is becoming increasingly unstable, the organization said In addition, it said Bank of America likely is undercapitalized, as it faces potential liabilities and market risks that could severely destabilize it.These liabilities could arise from the bank’s ongoing litigation and from exposure to financial instability in Europe.

An ongoing study by the Volatility Institute at New York University’s Stern School of Business confirms the danger posed by the bank: When looking at financial institutions’ contributions to systemic risk, Bank of America ranks first among U.S. financial institutions. The analysis shows not only that Bank of America is highly susceptible to financial crises, but also that it could “create or extend” a crisis.

“The bank poses a ‘grave threat’ to U.S. financial stability by any reasonable definition of the phrase,” said David Arkush, director of Public Citizen’s Congress Watch division. “If Bank of America in its current form were to fail, it would devastate the financial system. We’re asking the regulators to make sure that never happens. The only way to be sure is to reform the institution into something safer before any crisis materializes.”


Share your Comments