Evaluate the Capital Factor of Bac Resolution Plan
Autor: haidi WANG • April 19, 2017 • Case Study • 438 Words (2 Pages) • 938 Views
Capital
BAC must provide material entities sufficient capital to make sure that those entities can maintain their crucial services when the company is resolved. We evaluated capital from four aspects: capital preparedness, regulatory capital, capital enhancements and risk management governance.
Capital preparedness
As shown in table-1, BAC reduced overall leverage via increasing capital, cutting down half consolidated long-term debt, reducing 85% outstanding commercial paper and eliminating $73 billion in divestitures. And with the purpose of lowering refinancing risk, the company smoothed and extended debt maturity profile. It strengthened capital and remained long-term debt levels in order to support the material entities’ capital needs. Since BAC has achieved a stronger financial position in 2016 than it had ever been, it can provide sufficient capital easily in a business-as-usual scenario. Further, under resolution scenario, such a well-positioned company still can aid itself in returning to financial health.
Table-1 Changes in capital and debt indicators (in billion)
2016 | 2009 | |
Increased Common Equity Tier 1 capital | $168 | $76 |
Increased tangible common capital | $170 | $119 |
Increased total equity capital | $267 | $231 |
Reduced consolidated long-term debt | $217 | $523 |
Lowered near-term debt and long-term debt maturing within one year | $20-25 | $50 |
Source: 2015 Resolution Plan, 2016 Submission
Regulatory capital
BAC is subject to regulatory capital rules issued by U.S. banking regulators including Basel III. Table-2 shows the capital composition and ratios under Basel III with two methods. All capital ratio and supplementary leverage ratio meet the regulatory minimum requirement, demonstrating that the company meets the definition of “well capitalized” under current regulatory requirements.
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