The second largest bank in the US has agreed to a settlement with authorities in the USA for misleading investors in mortgage backed investments. Bank of America has agreed to the largest settlement paid by a financial institution in the world’s largest economy. The case relates to two entities owned by the bank, Countrywide Financial and Merrill Lynch. The settlement highlights the strong stance authorities are taking in dealing with factors that led to the 2008 recession.
In details issued about the bank’s case, the US banking institute will pay a total of $9.65bn in cash and provide consumer relief worth about $7bn, the funds will be allocated to homeowners who are facing difficulties in making payments. Commenting about the case, the US Associate Attorney General Tony West said, “No institution is either too big or too powerful to escape,” punishment.
The case relates to one of the country’s largest mortgage lenders, Countrywide Financial and Merrill Lynch, both institutions were found guilty of selling mortgage loans to investors without disclosing the appropriate risks involved in the product.
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Regulators and government officials across the developed world have been reviewing the systemic failures made by institutions that resulted in the 2008 global recession. Authorities found that investors were being sold complex products without being informed about the risks and dynamics of the product.
Mr. West, summarized the dilemma in his speech: “It’s kind of like going to your neighbourhood grocery store to buy milk advertised as fresh, only to discover that store employees knew the milk you were buying had been left out on the loading dock, unrefrigerated, the entire day before, yet they never told you.”
The settlement amount was the largest issued to a single entity, previously, fellow banking giant, JP Morgan, faced the regulators for a similar case.
Global financial markets have been scarred by ongoing mishaps since the 2008 crisis, in the latest round of events banks have been facing the brunt of rate manipulation linked to Libor and FX fixing.