Bank of America (BAC:US) Corp., the second-largest U.S. bank, said it could survive a deep U.S. recession that includes a 21 percent drop in housing prices and an 11.7 percent jobless rate.
The lender would keep its Tier 1 common ratio at 8.4 percent or higher during a hypothetical market shock and recession, above the 5 percent minimum, Charlotte, North Carolina-based Bank of America said in a disclosure of its company-run stress test. The bank said it would suffer loan losses of $36.8 billion during the nine-quarter period, and a $26.1 billion net loss.
The biggest U.S. banks must conduct so-called mid-cycle stress tests using their own scenarios and disclose a summary of the results. While the tests are submitted to the Federal Reserve, they aren’t related to approval of the firms’ capital action plans that determine dividends and share buybacks.
Bank of America’s performance in its own test topped results in the Fed’s version in March, which yielded a minimum Tier 1 common ratio of 6.8 percent. The Fed’s test used different assumptions and covered a different time period.
Bank of America’s severely adverse scenario included a 60 percent drop in the Standard & Poor’s 500 Index. The lender would have $14.2 billion in loan losses from credit cards, the most of any category. Domestic first-lien mortgages would have a loss rate of 2.8 percent during the period, the bank estimated.
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