The Wall Street Journal reports today that the Fed is asking Bank of America to provide it with options it would take in the event its condition deteriorated along with the economy. 

That’s the good news.  The Fed is being proactive and apparently trying to get in front of a possible disorderly collapse by the biggest bank in the US with assets of $2.26 trillion as of the end of June. 

But, that’s also the bad news.  Where is the Financial Stability Oversight Board (FSOC)?  It was created for just these kind of circumstances.  BofA has $2.26 TRILLION in assets when Lehman had about $600 billion in assets when it collapsed and Bear Stearns had about $400 billion when it collapsed, albeit into the arms of JP Morgan Chase.  There is no rational argument that a collapse of BofA wouldn’t threaten the financial stability of the US financial system.  

And, what is the status of BofA’s resolution plan?  That’s its so-called living will that would enable regulators to unwind a systemically significant financial institution in a way that doesn’t cause problems to threaten the financial system.

While the Fed is the primary regulator of BofA, FSOC has at least co-equal jurisdiction and has greater firepower given that all financial regulators are members of FSOC, including the FDIC which has the legal responsibility to unwind a systemically significant financial institution if it comes to that.  Let’s hope the Fed’s jurisdictional concerns or other regulator’s jurisdictional deference aren’t at play here, although both might be preferable to FSOC being asleep at the switch.  

The real question is when are we going to see any life from the FSOC, other than periodic stage-managed public meetings.