Second, the FDIC must worry about the financial stability of Bank of America. If it were to fail the FDIC could experience a potentially gigantic loss, as its deposit insurance costs would be enormous if the bank's assets were insufficient to cover its millions of accounts up to $250,000.

Third, the FDIC is also now the non-bank resolution authority. When wearing that hat, it has to decide if the bank is in such dire straits that it must be quietly taken over and quickly resolved. Some speculated that the FDIC could be eying BOA for this reason its share price plunged by more than 35% from July through last week (but has risen since it began adding to its capital).

In each of these roles the FDIC might have a different view of how a settlement should look. As an investor it wants a big settlement. As an insurer, it would worry about a big settlement. As a resolver, it might actually have some control over the size of a settlement.

In theory, different groups at the FDIC might be involved in each of these processes. They may talk, but given the above internal conflicts it's more likely they'd be arguing. Under which situation are taxpayers better off -- if the settlement is a) large or b) small? It's hard to know for sure. But presumably a BOA failure would make the FDIC and broader U.S. economy far worse off than a big settlement.



Read the full story at Dow Jones Newswires.

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