Black and white street sign showing corner of Wall Street and Broad Street, lined with U.S. flags

U.S. Regulators Fail ‘Living Wills’ at Five of Eight Big Banks

Five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money, federal regulators said on Wednesday.

The banks have until October 1 to resubmit their plans with serious “deficiencies” corrected, or face stricter regulations, like higher capital requirements or limits on business activities, regulators said.

The “living wills” that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed were not credible came from Bank of America Corp, Bank of New York Mellon Corp, JPMorgan Chase & Co, State Street Corp, Wells Fargo & Co.

The requirement for a living will was part of the Dodd-Frank Wall Street reform legislation passed in the wake of the 2007-2009 financial crisis, when the U.S. government spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S. economy.

“The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systemically important financial institutions demonstrate a clear path to an orderly failure under bankruptcy at no cost to taxpayers,” FDIC Chairman Martin Gruenberg said in a statement. “Today's action is a significant step toward achieving that goal.”

On a conference call to discuss JPMorgan's earnings, its chief financial officer, Marianne Lake, said the bank was “disappointed” with its failure. Wells Fargo also said it in a statement that it was “disappointed,” and will work to address flaws by October.

Bank of America said it has made progress “but we have more work to do,” and that it will quickly address the shortcomings identified by regulators. State Street and Bank of New York Mellon both said it was committed to addressing the areas addressed by the Fed and FDIC.

None of the eight systemically important banks, which the U.S. government considers “too big to fail,” fared well in the evaluations. A bank has to fix deficiencies only if the two regulators jointly determine its plan does not have the potential to work.

The FDIC alone determined that the plan submitted by Goldman Sachs was not credible, while the Federal Reserve Board on its own found Morgan Stanley's plan not credible. Citigroup's living will did pass, but the regulators noted it had “shortcomings.”

Goldman Sachs said in a statement that it has made “significant progress” and wants to improve its plan further until regulators are satisfied. Morgan Stanley said resolution planning is one of its “highest priorities,” and it plans to work with regulators to further improve its plan.

Citigroup was pleased that regulators did not find any deficiencies in its plan, and will work to address shortcomings, Chief Executive Michael Corbat said in a statement.

This story originally appeared on Reuters by Lisa Lambert on April 13, 2016. View article here.


Sign up now for latest executive insights and latest news delivered right to your inbox.

  • This field is for validation purposes and should be left unchanged.

Related Articles

Why We Celebrate Independence Day on July 4th

Why We Celebrate Independence Day on July 4th

Did you know? While we celebrate July 4, 1776, as the birth of our nation, it was actually two days earlier, on July 2, that the Second Continental Congress voted to adopt a resolution for independence—one that was originally put forth on June 7! July 4, 1776, is the...

read more

Start diversifying today


As one of the largest distributors of precious metals in the nation, U.S. Money Reserve gives you access to our highly-trained team.

U.S. Money Reserve Gold Kit and Global Gold Forecast Special Report Thumbnail
The Ultimate Guide

Free Gold Information Kit

Sign up now to receive the ultimate guide to gold ownership, unlock special offers, and more.