Public Statements & Remarks

Statement of Commissioner Christy Goldsmith Romero in Support of Enforcement Case Against Bank of America and Merrill Lynch for Violating Reporting & Supervision Rules Designed to Identify Systemic Risk

September 29, 2023

As financial regulators, we have a responsibility to guard against post-crisis complacency towards Dodd-Frank Act rules—complacency that exposes the U.S. financial system to systemic risk.  This case against Bank of America and Merrill Lynch is an example of just such complacency, and I strongly support it.

This case holds accountable banks that received extraordinary taxpayer funded bailouts via the Troubled Asset Relief Program (TARP) after their unchecked risk taking led to a financial crisis.  Our investigation found that these TARP-recipient banks violated post-crisis Dodd-Frank Act requirements aimed at tougher regulation of over-the-counter (OTC) derivatives, known as swaps, which contributed to the financial crisis.  I am appalled at the lack of seriousness with which Bank of America and Merrill Lynch treated post-crisis reforms that are designed to help regulators identify systemic risk.

The Fundamental Importance of Swap Data Reporting

September marks the 15th anniversary of the collapse of Lehman, which set into motion the 2008 global financial crisis, including Merrill Lynch’s near-failure, its subsequent acquisition by Bank of America, and an additional Bank of America bailout.  In 2009, G20 leaders gathered in Pittsburgh “to turn the page on an era of irresponsibility and to adopt a set of policies, regulations and reforms to meet the needs of the 21st century global economy.”[1]  One of the commitments the G20 leaders made was to require reporting of OTC derivative contracts to trade repositories.[2]  The Dodd-Frank Act implemented this G20 commitment by requiring swap data reporting.

As regulators, we cannot allow our financial system to return to an era of irresponsibility when it comes to systemic risk.  Swap data reporting is fundamental to post-crisis financial regulation as one of the key tools to help regulators identify risk that could become systemic, and to conduct market surveillance.  Reporting rules bring transparency to a previously opaque market.  Without this transparency, regulators are blind to the same risks that contributed to the financial crisis.

Bank of America’s and Merrill Lynch’s Illegal Actions

The Commission’s investigation uncovered widespread violations of the swap reporting laws by Bank of America and Merrill Lynch for millions of swaps.  The banks never once reported certain required swap data fields.

The illegal actions are a failure of corporate governance.  Despite their compliance personnel first flagging swap reporting issues in 2016, the banks did not fix the issue.  Instead, the banks appear to have passed around responsibility for remediation like a hot potato, ultimately dropping the issue without fixing it.  Despite knowing about these issues for years, the banks also did not self-report to the Commission.  There was no system in place to supervise compliance with the swap data reporting rules.

The Commission is sending a strong message of public accountability and deterrence by requiring Bank of America and Merrill Lynch to admit their wrongdoing, which the CFTC did not require in previous settlements with other banks for similar violations in July 2022.  I have advocated for the CFTC to require more settling defendants to admit their wrongdoing.[3]  In my two decades as a law enforcement official, I have observed greater deterrent value when defendants are required to admit their wrongdoing, particularly when combined with a penalty (in this case, $8 million).

For large Wall Street banks with significant resources that can afford to pay penalties, a regulator requirement for banks to admit their wrongdoing in settlements carries collateral consequences that banks should take seriously.  Requiring defendants who settle with the CFTC to admit their wrongdoing should put other Wall Street banks on notice that they can no longer expect to violate the law for years and then treat CFTC enforcement settlements as a cost of doing business.  I also support the undertaking requiring a report to the Commission on the steps the banks take to fix the problems and come into compliance with the law.

It has been far too long since the Dodd-Frank Act swap data reporting rules have been in place for banks to continue breaking these rules.  The stakes are too high for banks to become complacent.  They must be held accountable.  I commend the enforcement staff for their investigation.

[2]See Id.

[3] In September 2022, I proposed a “Heightened Enforcement Accountability and Transparency” (HEAT) Test for the CFTC to require more defendants to admit wrongdoing in CFTC enforcement settlements where admissions are necessary to promote the public interest goals of law enforcement—justice, accountability, and deterrence—to the fullest extent.  CFTC Commissioner Christy Goldsmith Romero, Proposal for a Heightened Enforcement Accountability and Transparency (“HEAT”) Test to Require More Defendants to Admit to Wrongdoing in Settlements | CFTC (Sept. 19, 2022).