Years after the global financial meltdown, five of the nation’s largest banks still don’t have credible plans for weathering a crisis without a bailout
Nearly eight years after the global financial meltdown, five of the nation’s largest banks still don’t have credible plans for weathering a crisis without a taxpayer bailout, according to the Federal Reserve and the FDIC.
The two agencies determined that the emergency plans of Bank of America, JPMorgan Chase, Bank of New York Mellon, State Street and Wells Fargo were not “credible or would not facilitate orderly resolution under the U.S. Bankruptcy Code, the statutory standard established in the Dodd-Frank Wall Street Reform and Consumer Protection Act.”
None of the eight banks considered “too big to fail” by the government fared very well in the recent examination of their “living wills” – plans, required by the Dodd-Frank Act, that would provide a strategy for winding down in the event of another collapse. In addition to the five banks that were failed by both the FDIC and the Fed, Goldman Sachs’ plan was nixed by the FDIC alone, while the Fed said Morgan Stanley’s plan wasn’t credible. Citigroup’s plan passed with both regulators, but both warned it had “shortcomings.”
“Each plan has shortcomings or deficiencies,” said FDIC Vice ChairmanThomas Hoenig. “No firm yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal.”
Banks are only required to repair deficiencies in their plans if both regulators fail them, according to a Reuters report. But banks found deficient can be held to stricter regulatory requirements – and if they haven’t addressed the identified issues within two years, they can be forced to divest assets.
The two agencies determined that the emergency plans of Bank of America, JPMorgan Chase, Bank of New York Mellon, State Street and Wells Fargo were not “credible or would not facilitate orderly resolution under the U.S. Bankruptcy Code, the statutory standard established in the Dodd-Frank Wall Street Reform and Consumer Protection Act.”
None of the eight banks considered “too big to fail” by the government fared very well in the recent examination of their “living wills” – plans, required by the Dodd-Frank Act, that would provide a strategy for winding down in the event of another collapse. In addition to the five banks that were failed by both the FDIC and the Fed, Goldman Sachs’ plan was nixed by the FDIC alone, while the Fed said Morgan Stanley’s plan wasn’t credible. Citigroup’s plan passed with both regulators, but both warned it had “shortcomings.”
“Each plan has shortcomings or deficiencies,” said FDIC Vice ChairmanThomas Hoenig. “No firm yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal.”
Banks are only required to repair deficiencies in their plans if both regulators fail them, according to a Reuters report. But banks found deficient can be held to stricter regulatory requirements – and if they haven’t addressed the identified issues within two years, they can be forced to divest assets.
