Federal Reserve made an announcement approving Bank of America’s (NYSE:BAC) resubmitted stress test report on Thursday, December 10th, agreeing it to pay quarterly dividend and reinforcing its $4 billion repurchase plan.
For Bank of America, it is a meaningful victory reflecting improving relationship between banks and regulators since financial crisis. In the post crisis era, the relationship between banks and Federal Reserve is subtle. Along with the more and more capital requirements and regulations, banks have been going through a tough time with meeting these requirements with regulatory institutions. Passing the stress test is very crucial for Bank of America, keeping it competitive among other major investment banks on the Wall Street.
However, Federal Reserve said in the statement that “the Bank of America has more to do and must continue to make steady, demonstrable progress.” The bank must establish and maintain “sound risk-management and capital-planning processes that are commensurate with size and complexity of its operations and systemic importance.”
The stress test for investment banks is to determine if banks can withstand future financial crisis. According to Wall Street Journal, regulators are concerned about this year about qualitative problems with Bank of America including the assessment that top executives were not forward-looking.