Will Bank of America’s Mistake Undermine the Fed’s Stress Test?
By Donna Borak
Bank of America’s discovery that it submitted incorrect information to the Federal Reserve Board during its recent stress test could undermine what has already become an overly complex exercise. Observers expressed alarm over Monday’s announcement, suggesting the mistake raises doubts about the credibility of the Fed’s annual exercise, which is intended to show the resiliency of the country’s top banks in times of crisis. The latest snafu points to the complexity of the central bank’s effort for both the agency and the banks themselves that must surpass the Fed’s expectations — a bar that has sometimes perplexed institutions. “The fact is that big holding companies are very complex and, thus, so is CCAR,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics Inc. “CCAR has been critical to the credibility of both big holding companies and the Fed, so it’s important to balance this complexity with a transparent testing protocol that in future prevents this type of post hoc correction.”