BofA’s Moynihan Says Rapid Rate Rise Could Shock System

Bank of America Corp. Chief Executive Officer Brian T. Moynihan said that while credit hasn’t been overextended, an overly rapid rise in interest rates may rattle markets.

Bond prices will decline as rates go up, which shouldn’t be a problem for long-term investors who matched holdings against future liabilities, Moynihan said today in a Bloomberg Television interview. Disruptions might come if the change happens too quickly, Moynihan told Bloomberg’s Erik Schatzker after appearing on a panel discussion at the World Economic Forum in Davos, Switzerland.

“It’s more the worry that if rates move too fast, it will cause shocks in the system,” Moynihan said. “I’m not sure it’s a high probability, but we worry about it.”

The underlying fundamentals of the economy are still improving and bankers have plenty of funds to lend as cash sits idle at the Federal Reserve, Moynihan told the Davos panel. “We’re sitting on tremendous liquidity in our industry,” he said. The Charlotte, North Carolina-based company ranks second by assets among U.S. lenders.

The bank told investors earlier this month it’s counting on what it calls “a slow-growth but healthy economy” for the coming year. While central banks have been providing support with low rates, the more fundamental issue for nations is to regain their competitiveness, Moynihan said, a sentiment voiced by other leaders during the session.

Central Banks

“We’ve got to take the burden off our central bankers shoulders, and really governments and business leaders need to pick up that slack,” Deutsche Bank AG co-CEO Anshu Jain said.

Moynihan has spent his first three years at the helm cleaning up after his predecessor’s takeover of Countrywide Financial Corp. and Merrill Lynch & Co., divesting more than $60 billion of assets in the process.

The company announced an $11.7 billion deal to end disputes with Fannie Mae on bad home loans this month and joined an $8.5 billion industry accord to compensate for abusive foreclosures.

“Credit was restricted for a while but in things like the mortgage area in the United States it had to be restricted because this is what helped open the problem up,” Moynihan said. “So there’s more conservative underwriting built in.”