Stress Release: BofA Should Make Public the Results of Its Stress Test

Yesterday, Ken Lewis, the CEO of Bank of America, said in a note to his employees that the bank’s “own” stress tests “show that our capital and liquidity are sufficient to meet today’s economic challenges.”

If that is so, Lewis should release specific results of those stress tests. This way investors don’t have to wait until the end of April for the results of the federal government’s bank stress tests.

Let investors — and us taxpayers, who now own part of Bank of America — determine whether BofA’s capital and liquidity are “sufficient.” Without proof, Bank of America’s claims of solvency sound much like Fannie Mae’s and Freddie Mac’s as recently as late June. Fannie and Freddie were insolvent about six weeks later.

The federal government has already indicated how it will stress test banks, according to a Bloomberg report:

Losses will be projected under two economic scenarios. Under the “baseline” scenario, the U.S. economy will shrink 2 percent this year and expand 2.1 percent in 2010. The “alternative more adverse” set of projections has gross domestic product dropping by 3.3 percent this year, with a 0.5 percent expansion in 2010.

I have little doubt that Bank of America can generate a stress test using those parameters.

If, as Lewis suggests, Bank of America is the victim of “rumor, innuendo and falsehoods propagated by the misinformed,” then full disclosure of its stress-test results will do much to counter the “misinformed.” This is especially true considering President Obama’s call for greater transparency within the federal government. Nationalized or not, Bank of America should heed that call, too.