Bank
of America has become the latest financial institution to “fess up” in respect
of misreporting of its financial position joining the likes of RBS and the Co-op
Bank who recently issued similar mea
culpas.
The mistake, which had gone undetected for several years,
led the bank to report recently that it had $4 billion more capital than it
actually had. After Bank of America reported its error to the Federal Reserve,
the regulator required the bank to suspend a share buyback and a planned
increase in its quarterly dividend.
The regulators still believe Bank of America has
sufficient capital, however the disclosure of the accounting error will most
likely add fuel to the debate over whether the largest banks are too big and
complicated to manage.
The error brings into focus the quality of the Banks own
accounting employees who are to supposed to produce accurate reports of the
bank’s sprawling operations to the public and regulators each quarter. The
audit committee of the bank’s board and PricewaterhouseCoopers, its external
auditor, also allowed the error to slip by for so long.
The acknowledgement by a senior Bank official that “there
are signs that controls are not as tight as they need to be” is a classic under
statement”.
No doubt similar “errors” will surface from the financial
community in the months ahead
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