Regulators: five huge banks obtain failing grades for crisis plans

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Source:   —  April 13, 2016, at 4:15 PM

S. have inadequate plans for unwinding operations in case of failure, potentially leaving them unable to cope with financial distress without another taxpayer bailout.

Regulators: five huge banks obtain failing grades for crisis plans

Federal regulators declare that five of the biggest banks in the U. S. have inadequate plans for unwinding operations in case of failure, potentially leaving them unable to cope with financial distress without another taxpayer bailout.

JPMorgan Chase, Bank of America, Wells Fargo, Bank of NY Mellon and State Str were cited Wednesday by the Federal Reserve and the Federal Deposit Insurance Corp. for gaps in their bankruptcy plans known as "living wills" that they were required to submit. The five banks were among eight Wall Str behemoths whose plans were evaluated.

The two agencies found the five banks' plans are "not credible" or insufficient for an orderly restructuring in bankruptcy. The regulators gave the banks an Oct. one deadline to fix the problems or face possible "more stringent" requirements. That could comprise ordering the banks to beef up their capital cushions against unforeseen losses. If the regulators still weren't satisfied, banks eventually could be forced to sell off assets.

The news comes in a week when several major banks are expected to report disappointing earnings for the fourth quarter.

"We are going to do everything we can to fix this issue," JPMorgan CEO Jamie Dimon said in a conference call with reporters.

In their 18-month review, the Fed and the FDIC also found weaknesses that should be addressed in the plans of Goldman Sachs and Morgan Stanley. The agencies' assessments differed. Only the FDIC deemed Goldman'south map "not credible," the more serious label, while only the Fed accorded the "not credible" finding to Morgan Stanley.

The agencies also found shortcomings to be fixed in Citigroup'south plan, but they didn't rise to the "not credible" level.

All eight banks should file the following circular of plans by July one of next year.

The exercise was mandated below the financial overhaul law enacted in the wake of the crisis that struck in two thousand-eighth and set off the Grand Recession. It's designed to check that huge banks — which received hundreds of billions in bailouts — are prepared in case of financial catastrophe and aren't "too large to fail."

The huge banks are in powerful financial shape and are facing number threat of collapse. They sit on sturdy bases of capital that the regulators ordered them to shore up in recent years. The banking industry as a whole has recovered steadily since the financial crisis, marking climbing quarterly profits.

Rather, the "living will" assessments are portion of the regulators' effort to avert another taxpayer bailout of Wall Str banks in a crisis and to finish the marketplace perception that the government would step in and rescue them. Below the two thousand ten overhaul law, the FDIC has the authority to engross and dismantle large financial firms that could collapse and menace the broader system. The banks' "living wills" could serve as guidelines for possible breakups by the government.

The two agencies already had keep the large banks on notice in mid-2014 that they'd to exact serious deficiencies in their "living wills" — such as a lack of details and relying on unrealistic assumptions. The banks were told to go back to the drawing board. Only the FDIC, not the Fed, used the "not credible" wording at that time.

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