US rejects 'living will' plans of most large banks

Five giant banks - including JPMorgan Chase and Bank of America - failed to fulfill a crucial regulatory requirement that Congress introduced after the 2008 financial crisis to help make large financial institutions less a threat to the wider economy, federal banking regulators said on Wednesday.

Congress demanded that big banks regularly provide regulators with careful plans, also known as living wills, for how they would enter bankruptcy in an orderly fashion.

But the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) found that the plans of five banks were "not credible" or "would not facilitate an orderly resolution" under the United States bankruptcy code.

The failure of the banks to file satisfactory plans is likely to add fuel to the debate over whether some banks are "too big to fail," meaning that their collapse would pose such a threat to the wider economy that taxpayers would have to step in to bail them out.

The too-big-to-fail issue has been a topic in the presidential race, and proponents of breaking up the banks will most likely seize on the deficient living wills as evidence that the banks are still too big and complicated.

The other banks that submitted plans that did not pass muster with both the Fed and the FDIC were Wells Fargo, Bank of New York Mellon and State Street.

The five banks have time until October 1 to fix their plans.

If, after any such adjustments, the Fed and the FDIC are still dissatisfied with the living wills, they can impose restrictions on the banks' activities or make them raise their capital levels, which in practice means using less borrowed money to finance their business.

If after two years the regulators think the plans are still deficient, they can ask the banks to sell off assets and businesses, with the aim of making them less complex and simpler to unwind in a bankruptcy. Citigroup, despite having sprawling global operations, submitted a plan that mostly satisfied both regulators, a significant achievement for the bank.

The FDIC determined that the plan of Goldman Sachs was not credible, but the Fed did not reach that conclusion.

LIVING WILLS AT A GLANCE
Status of big banks' plans on how they would enter bankruptcy in an orderly fashion:

Failed

• JPMorgan Chase
• Bank of America
• Wells Fargo
• Bank of New York Mellon

Mostly satisfied

• Citigroup

Split decision

• Goldman Sachs
• Morgan Stanley

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