The Bank of America SEC settlement comes to $7.65 million after it allegedly overstated how much capital it had on its books. The company said in April that it had made an error in how it how it valued securities obtained in its acquisition of Merrill Lynch in 2009. Financial institutions are required to have capital buffers that are large enough to keep lending through another financial crisis.
The Federal Reserve subjects the banks to annual “stress tests” to check on their condition. The Securities and Exchange Commission says the Charlotte-based company overstated the amount of capital it had on hand. The SEC says the size of the overstatement eventually reached the billions of dollars.
After the error was discovered in the Bank of America SEC audit, the second-largest U.S. financial institution had to submit a new capital plan to the Federal Reserve, delaying a planned stock buyback and an increase to its dividend. The new capital plan was approved in August, and the bank canceled the $4 billion stock buyback. It raised its dividend to 5 cents from 1 cent.
In August the company agreed to a record $17 billion settlement with federal and state authorities over its role in the sale of mortgage-backed securities before the 2008 financial crisis. The agreement includes $10 billion in cash and $7 billion in consumer relief.
Bank of America did not admit or deny the SEC’s findings in reaching the settlement. Bank of America spokesman Jerry Dubrowski declined to comment. The bank has not publicly disclosed whether it has taken actions against any employees who were involved in the error.
The Bank of America SEC error grew from $888 million at the end of 2009 to more than $3.7 billion by the end of 2013, according to figures in the filing. Under the new Basel III regulatory-capital requirements, the bank’s error at year-end 2013 amounted to more than $4.3 billion.
The penalty adds to the billions of dollars in legal costs the second-largest U.S. bank by assets has paid since the financial crisis. It is a fraction of the size of other settlements the bank has reached, such as the $16.65 billion accord announced last month with the U.S. government and various states over soured mortgage bonds.
The size of the Bank of America SEC penalty reflects credit given to financial institution for cooperating with the investigation. Since the disclosure of the error, the bank is developing improved controls for its reporting of regulatory capital. Shares of the company lost 6 cents to $16.975 in afternoon trading Monday.