RISK MANAGEMENT STRATEGIES ADOPTED BY BANK OF AMERICA

 

ABOUT

Bank of America which is serving more than 10% of all American bank deposits is headquartered in Charlotte, North Carolina (Bank of America 2023). It was formed by Nation’s bank acquisition of Bank of America in 1998. Bank of America holds a market share of 17.8% in United States as of June 2022 and is serving approximately 67 million consumer and small business clients.


MAJOR DIVISIONS OF THE BANK

HOW DOES BANK OF AMERICA MANAGE THEIR RISKS

Risk is inevitable for any organization. Like any organization, banks are also susceptible to various risks and firm can never grow without taking risks. Some of the risks which Bank of America face are (Annual reports & proxy statements)::


RISK MANAGEMENT

Liquidity Risk

  •   The Asset and Liability Committee of the bank is in charge of framing the bank’s liquidity strategy (Annual reports & proxy statements). The corporate treasury team is responsible for devising and administering banks funding strategies and activities.
  • The latest current ratio published by bank was 0.74 for 2022 (Bank of America Current Ratio 2010-2022: BAC). Ideal current ratio for banks are considered to be 1.33:1 and we can understand that the current ratio for Bank of America is below the required standard. Bank must work further on improving the liquidity position.

Credit Risk

  •  Credit risk is managed based on the risk profile of borrower, repayment sources (Annual reports & proxy statements). Portfolio is either classified as consumer or commercial and credit risk is monitored for each portfolio.
  • Recession which occurred in 2008 due to collapse of housing finance market has resulted in higher provision and credit losses for Bank of America not only for 2008, but also for future period. After the collapse of bank’s consumer real estates, bank has introduced underwriting changes on new loans advanced with higher FICO (Fair Issac Corporation) scores and lesser to loan-to value loans.

Market Risk

  •   Risk associated with changes in market movements that affect value of assets and liabilities or revenue is known as Market Risk. Ex- Interest rate perils.
  • The bank manages this risk with the help of hedging instruments such as futures, options, swaps, and forwards (Annual reports & proxy statements).

Strategic Risk

Process of implementation of Strategic Plan (Annual reports & proxy statements).


o   Bank manages its strategic risk by employing key tool referred as economic capital allocations. It is the amount of capital that bank estimates it will need in order to remain solvent at a given time horizon.

 

Reputational Risk

  • Policies and controls are set up for managing this risk (Annual reports & proxy statements). . Team constantly monitors for reputational risks events and have process established to mitigate such risks in a timely manner.
  • In case if such risk events occur, team shall identify the issue and take action to minimize the extent of damage.

 

 

 REFERENCES

, N.A. (2022) Market share of leading U.S. banks by assets 2022, Statista. Available at: https://www.statista.com/statistics/727548/market-share-top-banks-thrifts-usa-by-assets/

NA (no date) Bank of America Current Ratio 2010-2022: BAC, Macrotrends. Available at: https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/current-ratio

NA (no date) Annual reports & proxy statements, Bank of America Corporation. Available at: https://investor.bankofamerica.com/annual-reports-and-proxy-statements.

NA (no date) Teams at Bank of America, Bank of America. Available at: https://campus.bankofamerica.com/teams.html.

Staff, F. (2023) Bank of America, Fortune. Fortune. Available at: https://fortune.com/company/bank-of-america-corp/.

Tikkanen, A. (2023) Bank of America, Encyclopædia Britannica. Encyclopædia Britannica, inc. Available at: https://www.britannica.com/topic/Bank-of-America-Corporation

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