Three major U.S. banks - including Fifth Third Bancorp. (FITB) and Wachovia Corp. (WB) - got clobbered in recent days on the news that they’ve lost another $1.6 billion by making investments in the Citigroup Inc. (C) Falcon hedge fund that lost 75% of its value earlier this year.

It’s just the latest chapter in a continuing credit-crisis saga that’s gone on for so long that many investors have become numb to the news: They regard all new developments with a kind of "so what" attitude, or just ignore the news completely.

Believe me when I say that such a response is easy to understand. But hear me out as I underscore why investors must continue to watch this financial-services-sector saga closely. It’ll keep you out of trouble.

Let me explain …

The funds were invested the premiums from so-called "Bank Owned Life Insurance Vehicles," or BOLIs, which are designed to pay off when key employees die.

BOLIs, in case you are not familiar with them, are specialized policies typically purchased as an employee benefit. Banks use them to fund such expected costs as employee compensation and the accompanying benefits. Like most life-insurance-type policies, BOLI policies contain both an investment feature and a death benefit.

And that’s why banks like them.

Not only does the bank accrue investment earnings revenue because they own the policies (bank-owned is the "BO" component of "BOLI"), the financial institution also receives the death benefit.

And since neither the death benefit nor the increase in the value of the investment vehicle is taxed, BOLIs became the mother of all tax shelters for banks.

And that brings us to the core problem.

You see, by taking the investment portion of the life insurance policies and moving them from traditional portfolio choices into more risky hedge funds, a bank, or in some cases the insurance company that sold the bank the BOLI policy, could increase its investment return with an almost-instantaneous, performance-enhancing boost that looked good to regulators and shareholders alike.

Of course, if you’re a baseball fan - as well as an investor - you know very well that there’s a downside to "performance-enhancing" boosts, even though the dramatic performance gains make that dark side very tough to resist.

That’s clearly why Fifth Third, Wachovia and a still-unnamed regional bank risked a reported $1.6 billion of their respective BOLI programs, an anonymous source close to the matter told MarketWatch.com.