[1]The Federal Reserve has instructed Bank of America to revise its capital plan by September 30 to address weaknesses in the bank's capital planning process, according a press release on Wednesday.
Bank of America stated that the company's Board of Directors authorized a $4 billion common stock repurchase program and that the Fed had completed its 2015 Comprehensive Capital Analysis and Review and informed the Charlotte, North Carolina-based megabank that the Fed did not object to the bank's capital plan for the period of Q2 2015 through Q2 2016. Under that plan, the common stock dividend rate would be maintained at 5 cents per share per quarter.
Due to certain weaknesses in Bank of America's capital planning process the Fed located in its recent annual stress test, however, the central bank asked Bank of America to submit a revised plan by September 30, 2015. The Fed may restrict Bank of America's capital distributions if the bank does not make any material progress in addressing the weaknesses that were found. If the Fed accepts the revised plan, Bank of America will be able to pay out higher dividends or buy back stock.
"Over the last few years we have simplified the company, sharpened our focus on serving customers and we are returning capital to our shareholders," Bank of America CEO Brian Moynihan said. "We believe that this year’s planned repurchase program is the best way to continue to drive value for our shareholders. We are committed to meeting the requirements in the time frame the Fed has established."
The Fed considers both quantitative and qualitative factors when examining a firm's capital plan. 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. 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," Federal Reserve Governor Daniel K. Tarullo said. "It also provides a structured assessment of their risk management capacities."
The Fed announced the results of its annual stress tests of 31 large banks last week. Two foreign banks, Deutsche Bank and Santander Holdings, failed the test due to widespread deficiencies in their capital planning processes, according to the Fed. The Fed accepted the capital plans of the 28 other financial institutions that took the test, among which were JPMorgan Chase, Citigroup, Morgan Stanley, Goldman Sachs, and Wells Fargo.