What Bank of America’s Accounting Mistake Can Teach the Market

The New York Times
April 30, 2014

The fact that Bank of America neglected to correctly account for certain structured notes that it inherited when it took over Merrill Lynch should not have surprised the market. And it raises the question of what other bad news may be coming from the big banks.

There were several signals before this week that Bank of America and large banks might be having problems. First, structured products — whose eventual value at maturity varies based on the performance of something else, like a currency or stock index — are challenging to value. The more complex they are, the harder it is to even find data to properly value them and to measure their credit, market, operational and liquidity risks. Anyone who claims that valuing structured products and measuring their risks is easy is being blinded by the chase for yield…Read More

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