The Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve Board have rejected the “resolution plans,” or “living wills,” of five of the eight largest U.S. banks, thus sending those institutions back to the drawing board.
The resolution plans are required under the Dodd-Frank Act. Last year, the eight banks submitted revised resolution plans that detail how they would keep themselves afloat should there be another severe economic downturn.
The FDIC and the Federal Reserve Board, however, have jointly determined that the resolution plans submitted by Bank of America, Bank of New York Mellon, JP Morgan Chase, State Street and Wells Fargo are “not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code,” as established under Dodd-Frank. These banks now have until Oct. 1 of this year to revise their plans and address the deficiencies.
Failing to do so could lead to punitive action, including increased thresholds for capital requirements and restrictions on growth, the agencies warn.
Interestingly, the two agencies didn’t completely agree on the resolution plans submitted by Goldman Sachs and Morgan Stanley. For example, the FDIC gave the plan submitted by Goldman Sachs a thumbs-down, while the Federal Reserve gave the plan a thumbs-up. Also, the Federal Reserve Board found that Morgan Stanley’s plan is not credible, yet the FDIC says it is credible.
Although both agencies gave Citigroup’s 2015 resolution plan a thumbs-up, they identified some shortcomings that must be addressed.
All eight banks must submit revised plans again on July 1, 2017.
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