Bank of America : 2019 Dodd-Frank Act Mid-Cycle Stress Test Results

Bank of America

2019 Dodd-Frank Act Mid-Cycle Stress Test Results

BHC Severely Adverse Scenario

October 23, 2019

Important Presentation Information

The 2019 Dodd-Frank Act Mid-Cycle Stress Test Results Disclosure (the "Stress Test Results") included herein has not been prepared under accounting principles generally accepted in the United States of America ("GAAP"). The Stress Test Results present certain projected financial measures for Bank of America Corporation ("Bank of America", "BAC", or "the Company") under the hypothetical economic and market scenario and assumptions described herein. The Stress Test Results are not forecasts of actual financial results for BAC. Investors in securities issued by Bank of America should not rely on the Stress Test Results as being indicative of expected future results.

Bank of America's financial information, prepared under GAAP, is available in reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2018.

Amounts presented are rounded to the nearest significant digit, as indicated or stated. Immaterial differences arising from the effect of rounding are not adjusted.

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Bank of America's Capital Planning Process

The Company's capital planning process is a robust, proactive, forward-looking capital management exercise that identifies and measures risks and translates them into granular estimates of potential losses to assess capital adequacy over a planning horizon considering different economic and market environments. Centrally, a committee comprised of senior management from a range of finance and risk backgrounds is responsible for oversight as well as review and challenge of certain aspects of the process. The process is fully integrated with the Company's financial and risk management routines and is subject to well-established internal controls and governance. The Company establishes the following requirements for the capital planning process:

• Identify, measure, and assess all material risks;
• Translate risk measures into estimates of potential losses over a range of scenarios and environments, including stress scenarios, and assess capital needs for risks not fully captured in stress testing results through a standalone impact analysis;
• Define available capital resources and estimate sources and uses of capital over the same scenarios and environments;
• Aggregate the sources and uses of capital and assess capital adequacy relative to applicable Capital and TLAC Management Triggers;
• Establish and maintain a comprehensive capital policy and robust capital planning practices, including capital contingency planning;
• Develop and maintain internal controls and monitoring; and
• Establish and maintain effective oversight and governance to ensure the integrity of the capital planning process.

As a key component of the capital planning process, the Company-wide stress test brings together estimates of losses and capital resources to assess the capital needed to support BAC's business activities, risk profile and strategic plan, and to provide sufficient capital for the Company to remain safe and sound under adverse economic and market conditions.

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Assumptions

• This document provides internal projections for BAC under the stressed macroeconomic and market conditions in the Bank Holding Company ("BHC") Severely Adverse scenario.
• The BHC Severely Adverse scenario embodies a deep recession in the U.S. as well as internationally accompanied by a period of heightened stress in commercial real estate markets and corporate debt markets, and assumes the following key macroeconomic variables over a nine- quarter horizon:
  o Maximum quarterly (annualized) rate of real gross domestic product ("RGDP") decline of 9.0% o Peak unemployment rate of 9.9%
  o Maximum home price index ("HPI") decline of 30.1%
  o Maximum commercial real estate price index decline ("CREPI") of 41.0% o Maximum equity market decline of 50.0%
  o Trough U.S. 10-year Treasury yield of 1.1% o Trough U.S. 3-Month Treasury rate of 0.3%
• Severe instantaneous global market shocks are also applied to the trading book, private equity positions, and counterparty exposures.
• Results presented herein include capital actions as specified under the Dodd-Frank Wall Street Reform and Consumer Protection Act ("DFA") stress testing rules. Specified capital action assumptions for BAC are itemized on page 18.
• Results comply with methodologies and instructions provided by the FRB for the 2019 Comprehensive Capital Analysis and Review and Dodd- Frank Act Stress Test.
• Results presented are estimates and may not reflect the actual impacts to Bank of America if such a hypothetical scenario were to occur. Importantly, in certain instances, methodologies required by the FRB differ from Bank of America's internal practices; therefore, results may not reflect actions Bank of America would likely employ under such stressed conditions.
• The stress test is applied to on- and off-balance sheet exposures as of June 30, 2019.
• Capital, risk-weighted assets ("RWA") and capital ratios are calculated under the Basel 3 Standardized ("B3S") approach.
• Income statement categories in this document conform to the FRB's definition of Pre-Provision Net Revenue ("PPNR"), and classifications of revenue and expense items may differ from reporting under Bank of America's public financial disclosures and preparation of financial statements under GAAP.

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Scenario Description

The BHC Severely Adverse scenario has its origins in a quantitative, model-based approach grounded in historical data and relationships with the intent to produce a scenario that is stressed relative to an external consensus baseline based on the most recent Blue Chip Economic Indicators survey. The BHC Severely Adverse scenario also incorporates adjustments to apply increased levels of stress corresponding to BAC's specific risk sensitivities and potential vulnerabilities.

This scenario features a shrinking U.S. economy which falls into a deep recession followed by a gradual recovery. A global recession is also featured in the scenario. There is an escalation of trade tensions between U.S. and China, Japan, and Eurozone due to recent introduction of tariffs disrupting supply chains and increasing business costs. The scenario also captures labor market and GDP contractions that are notably similar to past severe economic downturns, particularly the 2008-09 recession. Similar to that episode, it is also assumed that the associated financial disruption includes a housing crisis wherein continuous declines in housing prices moderate slowly over the forecast horizon as unemployment remains elevated.

In the U.S., the BHC Severely Adverse scenario is characterized by a cumulative decline in real GDP of 6.7% and an unemployment rate rising to 9.9%, increasing 6.3 percentage points over the projected horizon. In addition, housing prices decline 30% over the

horizon. The scenario's international component includes a recession across Europe (with a 6.5% cumulative decline in Eurozone real GDP), eroding confidence as continued prospects of a 'hard' United Kingdom exit from the European Union and declines in Asia and Mexico as result of trade war intensification.

Other severe outcomes that are incorporated into the scenario are sharply elevated equity market volatility and an S&P 500 decline of 50% within the two quarters of the forecast horizon. Libor spreads to fed funds widen significantly, and corporate bond and mortgage spreads reflect high levels of credit market disruption and default risk. While short term rates decline rapidly, the decline in long-term rates is less pronounced due to global aversion to long-term fixed income assets.

This scenario also includes a severe hypothetical financial market disruption compressed into a single day using shocks informed by idiosyncratic risk concentrations and points of weakness to stress the June 28, 2019 trading and counterparty portfolios. See "Market and Counterparty Risk Methodologies" on page 13.

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