Would a UBS Split Expose U.S. Taxpayers to Losses?

Switzerland’s largest bank, UBS, is also a primary dealer with access to the Federal Reserve’s emergency lending window. We don’t know if UBS is actually using the Fed’s credit line, because that is kept secret. But the bank recently announced another multi-billion dollar mortgage-related write-down, and is trying to raise $15 billion in new capital as it grapples with the credit crisis. One of the ideas on the table is splitting the firm in two– separating the more conservative asset management part of the bank from the high-flying investment banking side.

Which creates a possible scenario where UBS could spin off its floundering investment bank while pushing the investment bank’s toxic debt to the Fed’s credit window, leaving U.S. taxpayers directly holding the bag for billions of castaway assets.

And then the UBS investment bank goes under.

I’m just saying, if things really start getting ugly out there, its possible.