Is Bank of America in Financial Trouble?

Joshua Ramos
Source: NBC News

2023 has seen some of the largest bank closures since the financial crisis of 2008. Moreover, as the Silicon Valley Bank closure has set off concern within the sector, many have wondered if some of the largest banks in the country are still stable. So, let’s delve into whether or not Bank of America could be in financial trouble.

Bank of America is among the most prominent banks in the country. Yet, is it healthy enough to sustain challenges that could come from continued stress in the banking sphere? Moreover, the overall health of the industry is a necessary point of observation, and the bank’s status makes it a vital part of that discussion. 

Bank of America’s Health

Bank of America Expects Fed to Raise Interest Rate to 6%
Source: Bloomberg

As we previously mentioned, Bank of America is undoubtedly one of the largest and most prominent financial institutions that the country has to offer. Indeed, the bank is among the largest, controlling more than $2.8 trillion in assets, and conducting operations in all 50 states of the United States. 

The bank currently serves more than 6 million customers and has a lot of consumers who depend on its services. Subsequently, in recent years, the institution has proven to be a stable banking option for consumers. 

In 2022, Bank of America boasted a net income of $20.4 billion. However, that figure was a noticeable decrease from $27.4 billion in 2021. Alternatively, its revenue did see an increase over those years, rising from $91.2 billion to $95.2 billion, respectively. 

Additionally, a figure that typically dictates the health of a bank is its return on equity. Bank of America noted an 11.1% figure in 2022, which is considered to be healthy. Moreover, the financial institution has $1.4 trillion in deposits and $998 billion in loans. 

The bank’s portfolio shows consumer loans representing 38% of its total. Conversely, commercial loans represent 40% of all loans, while residential mortgages represent 22% of all loans. Subsequently, Norada reports that the bank still maintains a Tier 1 capital rating of 11.6%. Contextually, that is well above the requirements granted by regulators, which are only 6%. 

Could There be a Risk?

The data that determines the health of a bank is far different from whether or not there is any risk associated with the bank. Indeed, although the bank is certainly healthy, it faces a host of different risks, as any financial institution does. However, the state of those risks and their severity dictate the possible financial situation that the bank could find itself in. 

For Bank of America, its primary risks are associated with credit, the market, and its operations. Firstly, credit risk refers to the potential for a borrower at a bank to be unable to repay their loans. 

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Source: American Banker

Although the diversity of the bank’s portfolio has lessened this risk to a certain degree, it does not absolve them. However, they still boast an extensive credit risk management system. Thus, the bank has done its best to make a proper assessment of the merits of the individuals seeking loans for approval.

Moreover, there remains a risk regarding the market for Bank of America. Specifically, these are related to overall market developments that could negatively impact the institution’s operations. Specifically, interest rate increases or exchange rates could have a negative impact on the bank. 

This seems to represent the biggest risk for Bank of America. Macroeconomic factors have seemingly caused the most stress on banks throughout the country, and the consistent action by the Federal Reserve to combat inflation has not helped. Although Bank of America does use risk management processes, it has a lot of trading assets. This can increase the bank’s exposure in the event of rapid market changes. 

Finally, there are risks that are related to the operations of a specific bank. Moreover, these are issues that could arise from fault processes, or errors on the part of the bank’s systems. However, for a bank the size and scope of Bank of America, this seems to be the least likely to affect them and cause a catastrophic event.

Is Bank of America In Financial Trouble?

There is no denying that recent developments in the banking sector have incited some concern over banks in America. Moreover, with Bank of America operating as one of the largest banks in the world, it has a lot of people depending on it. 

The collapse of Silicon Valley Bank actually saw an increase in deposits for Bank of America. As people sought protection from the contagion regarding the closure of SVB, Bank of America proved to be a place to find that. Thus, it is safe to say that the bank is not in financial trouble for the time being.