Bank Watch

WSJ: Fed faulted BofA for not anticipating ‘stress test’ problems

The Wall Street Journal, citing people familiar with the matter, has reported that the Federal Reserve told Bank of America it doesn’t believe its management is forward-looking enough. The Fed shared those concerns with the bank over problems the regulator found with the lender’s latest ‘stress test’ submission, according to the Journal’s story.
The Wall Street Journal, citing people familiar with the matter, has reported that the Federal Reserve told Bank of America it doesn’t believe its management is forward-looking enough. The Fed shared those concerns with the bank over problems the regulator found with the lender’s latest ‘stress test’ submission, according to the Journal’s story. jkomer@charlotteobserver.com

Bank of America was scolded earlier this year by the Federal Reserve for not anticipating problems with its recent “stress test” submission, The Wall Street Journal has reported, citing people familiar with the matter.

In a setback for the Charlotte-based bank, the Fed announced in March that it found “deficiencies” and “weaknesses” in the lender’s capital planning process. The regulator made those findings during its annual stress testing of the nation’s largest banks – a process to determine whether the lenders have enough capital on hand to withstand another major economic downturn.

In connection with the stress test issues, the Fed told Bank of America it doesn’t believe its management is forward-looking enough and instead merely reacts to problems after they are raised by regulators, the Journal reported, citing people familiar with the matter.

The rebuke led the bank to hire a bevy of consultants to help address the issue, according to people familiar with the matter, the Journal reported.

Here’s an excerpt from the Journal’s story:

The details of the Fed’s feedback to the bank weren’t released publicly and haven’t been previously reported. The Fed’s concerns focused on the bank’s ability to deal with a future crisis, an issue the regulator has raised with other banks as well, and not its overall management, according to a person close to the situation.

In response to the criticism, Bank of America hired several outside consultants, including McKinsey & Co., KPMG LLP, Ernst & Young and Deloitte, to scrutinize the way it runs the tests, according to others close to the situation.

The Journal said an unnamed Bank of America spokesman told the newspaper that CEO Brian Moynihan “is keeping the heat on everyone to get this on track, and he’s leaving no stones unturned in terms of marshaling resources.”

A Federal Reserve spokesman declined to comment on Bank of America, and a bank spokesman declined to comment on the lender’s communications with regulators, the Journal reported.

Despite faulting Bank of America for its capital planning process, the Fed in its March announcement granted the bank conditional approval to repurchase $4 billion in common stock. But the Fed also told the bank to address the issues the regulator uncovered and resubmit its capital plan by Sept. 30.

It marked the third stress test misstep for Bank of America in five years. According to the Journal’s story, Chief Financial Officer Bruce Thompson and Chief Risk Officer Geoff Greener have clashed over who should take the blame for the flubs.

In its March announcement, the Fed objected to the capital plans of two other lenders, Deutsche Bank Trust Corp. and Santander Holdings USA.

The Fed did not object to the capital plans of 28 other lenders, including Wells Fargo and BB&T Corp., Charlotte’s two other biggest banks by deposits.

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Twitter: @DeonERoberts

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