In March, the Fed required Bank of America to submit a revised capital plan due to certain weaknesses in the Charlotte, North Carolina-based bank’s capital planning process the Fed located in its annual Comprehensive Capital Analysis and Review (CCAR) conducted in early March. The deficiencies found in the stress test included weaknesses in certain aspects of Bank of America’s loss and revenue modeling practices as well as its internal controls, according to the Fed.
“Bank of America has made progress in remediating the identified deficiencies in its capital planning processes,” the Fed said in its statement, noting that Bank of America must continue to make “steady, demonstrable progress prior to the 2016 CCAR cycle toward establishing and maintaining sound risk-management and capital-planning processes that are commensurate with the size and complexity of its operations and systemic importance.”
Now that the Fed has accepted Bank of America’s revised capital plan, the bank will be allowed to continue buying back shares under the $4 billion common stock repurchase program that was approved by its Board of Directors in March, and also paying dividends at a rate of 5 cents per share per quarter.
Bank of America CEO Brian Moynihan said recently that the bank spent approximately $100 million to “get the process right for the resubmission,” according to a report from the Wall Street Journal.
The Fed considers both quantitative and qualitative factors when examining a firm's capital plan as part of the CCAR. Specifically, the Fed measures a firm's projected capital ratios under a hypothetical scenario of severe economic stress and the strength of the capital planning process. Strong capital levels can act as a cushion to help absorb losses and ensure that banks can still lend even in times of economic downturn. The Fed may reject an institution's capital plan based on either qualitative or quantitative factors.
“Our capital plan review helps ensure that the capital distribution plans of large banks will not compromise their ability to continue lending to businesses and households even during a period of serious financial stress,” Fed Governor Daniel K. Tarullo said. “It also provides a structured assessment of their risk management capacities.”