Introduction

Download our complete report on Bank of America (PDF).

In October, the federal government gave BofA and Merrill Lynch $25 billion in bailout funds. According to the Wall Street Journal, the move was designed "to keep money flowing through the financial system, ensuring that banks continue lending to companies, consumers and each other."

But rather than use the bailout money to increase lending and help revitalize the U.S. economy, BofA has cut credit to consumers and businesses, announced plans for mass layoffs, and continued foreclosing on homes. Meanwhile, it is using bailout funds for the very things it promised Congress it would avoid - executive bonuses, acquisitions of healthy companies, and payouts to private investors - while preserving its ability to lobby for more favors.

"I don't believe that the American people would have $25 billion go to a bank while workers who need the support for that money are standing outside on the street with nothing in their pockets." -Rev. Nelson Johnson, a pastor from North Carolina

How is BofA Using the Bailout Money?

Instead of using the bailout funds to increase lending or preserve jobs, BofA and Merrill Lynch are instead using the $25 billion on executive bonuses, foreign investments, payouts to private investors, and lobbying.

Even though Bank of America claimed that it did not use bailout funds to invest in healthy banks, just three weeks after receiving the bailout money, BofA invested $7 billion of it in China Construction Bank Corp. - a foreign bank with no presence in the U.S. As Morningstar Inc. analyst Jaime Peters noted, "This is falling closely on the heels of their receiving [bailout] money, which was intended to spur lending in the U.S. or have bigger, stronger banks buy the failing banks...But neither of these things is happening."

BofA also appears ready to reward shareholders and executives ahead of taxpayers. In October, BofA announced it will pay a dividend to its private shareholders. According to BailoutSleuth.com, a blog that monitors the banking industry bailout, that dividend actually provides shareholders a better return on their investment than taxpayers will get under the bailout package. Furthermore, BofA has not agreed to stop lobbying in light of the taxpayer infusion it received. Together, BofA and Merrill Lynch spent nearly $10 million in lobbying in the first nine months of 2008, but neither bank has indicated plans to cease lobbying until the bailout funds are returned to taxpayers.

Decreased Lending

BofA has paid lip service to the objectives of the federal bailout, but a company spokesperson admitted at a November Senate hearing that BofA is "lending less than we were a year ago." Recent reports indicate that the company has pulled back its consumer lending, raising rates on existing credit card balances and cutting lines of credit even for creditworthy borrowers. Bank analyst Meredith Whitney says that BofA is a significant part of what she estimates to be a $2 trillion contraction in U.S. consumer credit.

BofA has also made cuts to its small business lending. In market after market in 2008, from Philadelphia to Charlotte to South Florida, BofA has fallen in a key indicator of small business lending, the volume and value of loans issued with Small Business Administration (SBA) guarantees. BofA's SBA loan volume declined 68% in these three markets between 2007 and 2008.

The case of Republic Windows and Doors in Chicago highlighted how BofA has restricted small business credit even after receiving federal funds. BofA denied new credit to the company, which was forced to shutter its doors and lay off more than 200 workers three weeks before Christmas. The workers took shifts at a sit-in of the company's plant demanding pay they were owed, and won the support of Americans around the country, including President-elect Barack Obama. One worker said, "I know the economy is bad, for everyone, but all I want to do is give my kids a nice Christmas. I'm going to stay until I get all the money we deserve." BofA ultimately extended the company a new $1.35 million loan, apparently in response to the public pressure, but it is not known how many other small businesses have been more quietly affected by reduced credit from BofA.

"I know the economy is bad, for everyone, but all I want to do is give my kids a nice Christmas. I'm going to stay until I get all the money we deserve."
-Apolinar Cabrera, Republic Windows & Doors worker