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Bank of America derivatives transfer is criticized by Democrats in Congress

Lawmakers are criticizing Bank of America Corp. again, this time over the reported transfer of financial instruments from Merrill Lynch into the bank's deposit-taking arm.

It's a move the lawmakers say could put taxpayers on the hook for big losses - three years after the bank received billions in bailouts from the federal government.

More than a dozen Democratic members of Congress, including U.S. Rep. Brad Miller of North Carolina, wrote to federal regulators Thursday, asking why they allowed the move of derivatives into the retail bank, which contains deposits insured by the Federal Deposit Insurance Corp.

"This kind of transaction raises many issues of obvious public concern," Miller said in a statement. "If the bank subsidiary failed, innocent taxpayers could end up paying off exotic derivatives."

Bank of America spokesman Jerry Dubrowski said the bank's derivatives trades are subject to risk-management controls and are client-driven, not proprietary trades - meaning the bank is not betting with its own money.

"Bank of America serves clients' needs, including with cash and derivatives instruments, through many of its affiliates, including the bank," he said. "This is permissible in the current regulatory environment, and it is not expected to significantly change with the implementation of Dodd-Frank."

The retail subsidiaries of some other big U.S. banks, including JPMorgan Chase & Co. and Citigroup Inc., have as much or more in derivatives as Bank of America, data show.

Bank of America transferred the derivatives from Merrill Lynch after a credit downgrade in September, moving the contracts to the retail bank, which has a higher credit rating, Bloomberg News reported last week.

According to the Bloomberg report, the Federal Reserve favored moving the derivatives to give relief to the bank holding company, while the FDIC - which has to pay off depositors if a bank doesn't have the money to make them whole - objected.

Fed spokeswoman Barbara Hagenbaugh on Wednesday declined to discuss "supervisory matters pertaining to individual institutions." FDIC spokesman David Barr also declined to comment.

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