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Bank of America CEO: Bank regulators need to get 'calibrations right'

Brian Cheung

The head of the second largest bank in the United States says regulators have room to tweak post-crisis regulations on the banking industry.

Brian Moynihan, the chairman and CEO of Bank of America, told Yahoo Finance’s editor-in-chief, Andy Serwer, that regulators need to get the “calibrations right” on large banks. While Moynihan said it is positive for the banking industry to have more capital and liquidity than it did before the crisis, he said banks around the world worry about the unintended consequences of constraining the banking industry.

“My colleague CEOs in America and around the world are saying, ‘Some of this stuff doesn't really work. Some of this stuff is having an impact on markets that we don't want,’” Moynihan said on the sidelines of the World Economic Forum in Davos, Switzerland. “So let's talk about that. None of us are saying, ‘lower capital, lower liquidity.’”

Chairman and CEO of Bank of America Brian T. Moynihan attends a session at the 50th World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 21, 2020. REUTERS/Denis Balibouse

Moynihan made the comments during a conversation that aired in an episode of Yahoo Finance’s “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.

The banks have more capital

Moynihan pointed to stress tests as an example. Since the crisis, the Federal Reserve has required large banks like Bank of America to file tests that model the impact of a “severely adverse” economic scenario on a bank’s vitals. Failing that test could lead to restrictions on stock buybacks and dividends.

Moynihan compared the stress test to driving a car into a wall at 100 miles an hour, without the ability to hit the brakes. All 18 of the U.S. banks tested by the Fed last year passed.

“What that proves is the industry has more capital than the industry started with in the last financial crisis,” Moynihan said.

But Moynihan said in reality, banks can “see” the wall beforehand, suggesting that the stress test requires banks to hold more capital than would be realistically needed.

Moynihan, who has been at the helm of Bank of America since 2010, said 100 basis points of capital would equate to another $150 billion of loans that could generate economic activity.

As of December 2019, Bank of America holds about 11.2% of its risk-weighted assets in tier 1 common equity (referred to as the CET1 ratio). In essence, the CET1 ratio measures the core capital (like equity, cash) that could absorb a possible shock. 

Under the current Basel III framework, banks face a minimum requirement of 4.5% plus another 2.5% “capital conservation” buffer and an additional “surcharge” specifically assigned to global systemically important banks. In total, Bank of America faces a 9.5% regulatory minimum.

Moynihan said regulators can tweak the surcharge or buffer to free large banks to do more lending.

“Just calibrate it right,” Moynihan said.

Broadly, Moynihan said “regulation has worked” in making the banking system more resilient.

On the current macro environment, Moynihan said the U.S. consumer is in “pretty good shape” and looks poised to continue to drive the economy. A strong U.S. consumer helped Bank of America navigate 2019, during which it returned about $34 billion to shareholders through dividends and share buybacks.

Moynihan pointed to his bank’s strong capital and liquidity position as an example of his company’s “strength.”

“We do this because we believe nobody should control the destiny of Bank of America other than Bank of America,” Moynihan told Yahoo Finance.

Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.

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