Banks Could Be Made to Pay

In breaking news yesterday, it was revealed that Bank of America agreed to pay out $8.5 billion to investors who lost money based on what they are calling poorly-funded mortgages. The bank was originally asked for $47 billion to cover all the losses incurred by a 22-member investment group after the mortgage fallout, so it’s not as though they are really atoning for the damages done by the banking industry. The news does set up many new options, however, for investors and banks and the ramifications of the latter’s actions.

In short, this opens to the door to the possibility that banks will not only be made to pay for their individual lapses in judgment moving forward, but also in their policies in dealing with their subsidiaries. This means that from now on, larger investment groups can demand that the banks behind their loans become accountable for the services they provide in the long run, which means that more investment groups will be willing to put large portions of their own money forward. This could be a great improvement, then, for the economy in the long run, as money such as this being put back into the U.S. economic system will certainly spur growth.

As for Bank of America, they’re not worried about the payout too much, and not just because it’s only about 2% of their net worth. In fact, company executives see it as a great step moving forward because they are hoping that it shows as an example to other investment groups that their bank can manage itself and its subsidiaries through all financial crisis.

Investors already responded to the news yesterday by buying up not just stock in Bank of America, but also in larger investment banks. This is hopefully an early sign of good things to come, including a potential economic rebound for the United States, and more accountability on the part of the banks fueling it.

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Posted on June 30, 2011, in News. Bookmark the permalink. Leave a comment.

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