On Monday, Bank of America (NYSE: BAC) released its mid-cycle stress test results. Based on the test, the company said its Tier 1 common ratio-its minimum threshold for measuring financial health-would fall to 8.4%, the same level it projected last year during a similar test.
While on the surface this may seem that the bank hasn't really done much over the last year to improve its resiliency, the current scenario was built on tougher circumstances. For example, it increased a decline in house prices from 21% last year to 25%. It also included a 5.9% decline in Eurozone real GDP, up from its projection of 5% last year.
And lastly, the bank projected it would incur a $36.4 billion pretax loss on $31.3 in pre-provision net revenue in the case of said severely adverse scenario.
The Wall Street Journal provides the results from other banks who have released them thus far (the Dodd-Frank Act requires the banks release mid-year results sometime between Sept. 15 and Sept. 30):
Citigroup (NYSE: C) predicted its Tier 1 common ratio to be 8.4%, down from 9.1% last year. Morgan Stanley (NYSE: MS) projected its ratio would fall down to 8.9% from 9.5% last year. Goldman Sachs (NYSE: GS) reversed the trend with a ratio projection of 10.1%, compared to an 8.9% projection a year ago. And J.P. Morgan Chase & Co. (NYSE: JPM) saw minor improvement, with its ratio falling to 8.4% under a downturn scenario, down from 8.5%.
What are your thoughts on the numbers? Are these stress tests resulting in actionable improvements? Or are they merely keeping in line with regulations?