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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

quality of the protected assets, FDIC staff projected that the Deposit Insurance Fund
would not incur any losses. 
Once again, the FDIC Board met late on a Sunday to determine the fate of a strug-
gling institution. Brief dissent on the  P.M. conference call came from OTS Director
John Reich, who questioned why similar relief had not been extended to OTS-super-
vised thrifts that failed earlier. “There isn’t any doubt in my mind that this is a sys-
temic situation,” he said. But he added,

In hindsight, I think there have been some systemic situations prior to
this one that were not classified as such. The failure of IndyMac pointed
the focus to the next weakest institution, which was WaMu, and its fail-
ure pointed to Wachovia, and now we’re looking at Citi and I wonder
who’s next. I hope that all of the regulators, all of us, including Treasury
and the Fed, are looking at these situations in a balanced manner, and I
fear there has been some selective creativity exercised in the determina-
tion of what is systemic and what’s not and what’s possible for the gov-
ernment to do and what’s not. 

The FDIC Board approved the proposal unanimously. The announcement beat
the opening bell, and the markets responded positively: Citigroup’s stock price soared
almost , closing at .. The ring fence would stay in place until December
, at which time Citigroup terminated the government guarantee in tandem with
repaying  billion in TARP funds. In December , Treasury announced the sale
of its final shares of Citigroup’s common stock. 

BANK OF AMERICA: “A SHOTGUN WEDDING”
With Citigroup stabilized, the markets would quickly shift focus to the next domino:
Bank of America, which had swallowed Countrywide earlier in the year and, on Sep-
tember , had announced it was going to take on Merrill Lynch as well. The merger
would create the world’s largest brokerage and reinforce Bank of America’s position
as the country’s largest depository institution. Given the share prices of the two com-
panies at the time, the transaction was valued at  billion.
But the deal was not set to close until the first quarter of the following year. In the
interim, the companies continued to operate as independent entities, pending share-
holder and regulatory approval. For that reason, Merrill CEO John Thain and Bank
of America CEO Ken Lewis had represented their companies separately at the
Columbus Day meeting at Treasury. Treasury would invest the full  billion in
Bank of America only after the Merrill acquisition was complete.
In October, Merrill Lynch reported a net loss for the third quarter of . billion.
In its October  earnings press release, Merrill Lynch described write-downs related
to its CDO positions and other real estate–related securities and assets affected by the
“severe market dislocations.” Thain told investors on the conference call that Merrill’s
strategy was to clean house. It now held less than  billion in asset-backed-security