As BofA Shows, Regulators Still Too Reliant on Megabanks to Oversee Themselves
By Ryan Tracy
Bank of America Corp.’s disclosure that it misreported capital levels to the Federal Reserve is the latest indication that — more than five years since the financial crisis — supervisors remain reliant on megabanks to keep tabs on their sprawling operations. The Fed and other regulators have thrown a stricter rulebook at Bank of America and its peers, requiring them to maintain higher levels of loss-absorbing capital, barring them from engaging in some risky businesses, and making them pass stringent “stress tests.” But episodes like Bank of America’s error –- in which the bank, not the Fed, detected the problem — demonstrate that regulators aren’t likely to catch everything, even during a period of heightened scrutiny. The bank’s mistake was included in quarterly financial statements — known as Form Y-9C — that large firms file with the Fed to show they are meeting capital rules. The Fed analyzes the numbers banks submit for irregularities, but it doesn’t examine each of the thousands of data points it receives. Bank of America’s submission doesn’t appear to have raised red flags – a development that, according to a person familiar with the matter, has prompted a review of the whether the Fed’s evaluation can be improved. “These big bank holding companies and their subsidiaries are very complicated financial institutions,” said Karen Shaw Petrou, managing partner of the policy analysis firm Federal Financial Analytics, Inc. “The better these [stress] tests get, the more complex they have to get.”