Fed Approves BofA's Resubmitted Stress Test

The Federal Reserve has approved Bank of America's resubmitted stress test, giving the bank the green light to continue paying a 5-cent quarterly dividend and buy back shares. The Fed had said in March that it had concerns about the way the bank modeled for losses and revenue, and ordered it to turn in a new stress test. On Thursday, the Federal Reserve said the bank would be allowed to continue paying its dividend and buying back shares. The Fed's approval allows the bank to continue with its share-buyback program, where it may repurchase up to $4 billion of its own shares. But the Fed also hinted that it thinks the bank has more work to do. The bank "has made progress" in fixing its capital-planning deficiencies, the Fed said in a statement. But the bank also "must continue to make steady, demonstrable progress" before the next stress-test submissions in April, it said. The Fed's approval is a crucial victory for Bank of America, which is trying to prove that it can clean its slate of financial-crisis problems and improve relationships with regulators. The Charlotte, N.C., bank has had more stress-test stumbles than any of the other biggest U.S. banks. Its stock price has languished as investors have wondered over the years when it will be allowed to return more money to shareholders, and its dividend is much lower than peers like J.P. Morgan Chase and Wells Fargo. The Fed administers the stress tests to determine if banks can withstand future financial crises, and Mr. Moynihan last month called the tests "one of the strong things" that came out of the crisis. The bank's capital levels weren't the problem: The Fed found that all of Bank of America's capital ratios would be above the Fed's required minimums in the event of a severe downturn. But the regulators were concerned about qualitative problems--including their assessment that top bank executives weren't "forward looking," and should have anticipated problems with their stress test submissions, The Wall Street Journal previously reported. Mr. Moynihan has said the bank's stress-test processes had "plateaued." After the Fed's rebuke in the spring, the bank hired employees and a bevy of consultants to examine how management communicates with the board, whether the bank's risk models were adequately detailed, and other issues, according to people familiar with the matter. At a conference on Wednesday, Mr. Moynihan said the bank "wanted to be more careful to make sure we really nail this thing." "We spent 100 million some dollars to get the process right for the resubmission," he said, referring to how much the bank set aside for stress-test improvements after the Fed's rebuke. "We took an army and went after it." Write to Christina Rexrode at christina.rexrode@wsj.com