Finance Finance News Bank of America fined $18.3b over GFC products

Bank of America fined $18.3b over GFC products

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The Bank of America has paid almost $US17 billion ($18.27 billion) to settle allegations for its role in the events leading up to the global financial crisis.

US regulators had been probing claims that the bank misled investors into buying dodgy mortgage-backed securities which exploded when America’s housing boom went bust more than six years ago.

It is a record payout, but Bank of America was not on its own in spruiking these risky subprime mortgages.

There were trillions of dollars of bets that US housing prices would continue to rise.

However, at almost $18.27 billion, Bank of America is paying a much bigger price than other banks to resolve around a dozen state and federal investigations.

This morning, the US attorney-general Eric Holder said Bank of America’s unlawful, unethical and immoral behaviour in marketing dodgy products had taken to US economy to the brink of collapse.

“These loans contained material underwriting defects. They were secured by properties with inflated appraisals. They failed to comply with the federal, state and local laws and they were insufficiently collateralised,” he said.

“Yet these financial institutions knowingly and fraudulently marked and sold these loans as sound and reliable investments.”

Around $7.5 billion of the settlement will be used for what is being called “consumer relief” for Americans who found the value of their home was suddenly a lot less than the outstanding mortgage.

Some will see their mortgage debts reduced, others will get lower interest rates and some of the settlement will be used to build affordable rental housing.

While that is a long-awaited positive, there is criticism that, so far, no banking boss has faced criminal charges in relation to the subprime mortgage collapse.

Dennis Kelleher of US financial watchdog Better Markets says, while a $18.27 billion fine for Bank of America sounds like a lot, it might be only be a fraction of what banks made from marketing dodgy products.

“There’s no way to evaluate whether or not it is a lot of money, or whether or not it’s fair punishment, or whether or not it will deter or incentivise future crime unless you actually know how much money the Bank of America actually made from its illegal conduct, how much money its investors, customers and clients lost,” he argued.

“So, for example, if they paid $18.27 billion but they actually made $US200 billion from illegal conduct, then that’s not much money and not only won’t it deter future crime, it actually incentivises future crime.”