News

Concerns grow about Bank of America’s ability to meet capital requirements during Fed stress test

As the Federal Reserve plans to release the results of the latest bank stress test results, there is growing concern about whether or not Bank of America will meet capital requirements and how that will impact the stock market.

The Federal Reserve is scheduled to release the results on Thursday. The stress tests are more rigorous than those in 2009, which focused heavily on preventing bank failure. Moody’s Investor Service, Inc., said that the stress tests are “more severe” because banks must now have “a sufficient capital cushion to weather a severe downturn,” Fox News reports.

Banks must be able to withstand a 13 percent unemployment rate, 50 percent drop in equity prices, world economy glitches and a 21 percent fall in housing prices.

Fast Money trader Joe Terranova said that banks with the most consumer credit are at a greater risk of failing the stress tests.

“I think the concern has to be squarely on Bank of America,” Terranova said, according to MarketWatch.

The Clearing House Association, owned by Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co., warned in a letter to U.S. regulators this month that releasing the results to the public “could have unanticipated and potentially unwarranted and negative consequences to covered companies and U.S. financial markets,” the Wall Street Journal reports.

Regulators, however, see the stress tests as important to providing enhanced transparency for investors about the banks’ capacity to withstand market changes.

“The disclosure of stress-test results allows investors and other counterparties to better understand the profiles of each institution,” Federal Reserve Governor Daniel Tarullo said last November, according to the Wall Street Journal.

Officials from the Federal Reserve have assured banks that they will not release data pertaining to future acquisitions and mergers that could be used by competitors. Before releasing the results, the Federal Reserve will likely provide banks with an opportunity to view preliminary figures and voice concerns.

Comments are closed.