WASHINGTON -- Merrill Lynch & Co. has been held liable for losses resulting from Executive Life Insurance Co.-backed bonds it sold in 1988 and 1989 to an Illinois bank. An arbitration panel of the Municipal Securities Rulemaking Board found that Merrill Lynch and one of its brokers, Robert Peele, were liable for $176,982 in losses suffered by the unnamed bank. The bank purchased bonds from four of nine taxable issues backed by Executive Life guaranteed investment contracts in 1986, and damages were awarded on two of the transactions. Arbitrators concluded that the brokerage firm and Mr. Peele told the bank that the bonds were insured either by Municipal Bond Investors Assurance Corp. or Financial Guaranty Insurance Co. when, in fact, they were not. They also found that Merrill Lynch and Mr. Peele failed to disclose that bond proceeds were invested in GICs issued by Executive Life Insurance Co. The bonds in question are at the center of a controversy being played out in the Los Angeles County Superior Court.