Why was the Fed so insistentent into jamming Merrill into BAC hands? Let's look at BAC's counterparties:
The documents also reveal the bank's top 25 counterparties -- a closely guarded list of banks providing critical funding to Bank of America.
Bank of New York was at the top of the list, with an exposure of $46.1 billion, followed by
$45.3 billion to State Street and
$41.6 billion to J.P. Morgan Chase.
The Fed was worried about what these counterparties might do if the situation worsened for the bank.
And once Merrill was in BAC hands, the Fed could backstop all the paper.
The counterparty risk goes away!