'Living wills' for five out of eight large banks fail U. S. regulators' test

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Source:   —  April 13, 2016, at 4:18 PM

S. banks don't have credible plans for winding down operations during a crisis without the assistance of public money, federal regulators said on Wednesday, saying the institutions could face stricter oversight if they don't fix their plans.

Five out of eight of the biggest U. S. banks don't have credible plans for winding down operations during a crisis without the assistance of public money, federal regulators said on Wednesday, saying the institutions could face stricter oversight if they don't fix their plans.

The "living wills" that the Federal Reserve and Federal Deposit Insurance Corp jointly agreed weren't credible came from Bank of America (), Bank of NY Mellon (), J. P. Morgan Chase (), State Street (), Wells Fargo ().

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

"The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systemically necessary financial institutions demonstrate a clear path to an orderly failure below bankruptcy at number cost to taxpayers," FDIC Chairman Martin Gruenberg said in a statement. "Today’s action is a significant step toward achieving that goal."

None of the eight systemically necessary banks, which the U. S. government considers "too large to fail," fared well in the evaluations. However, a bank has to fix deficiencies only if the two regulators jointly define its plan doesn't have the potential to work.

The FDIC alone determined that the map submitted by Goldman Sachs () wasn't credible, while the Federal Reserve Board on its own found Morgan Stanley'south map not credible. Citigroup's () living will did pass, but the regulators well-known it'd "shortcomings."

"Each map has shortcomings or deficiencies," said FDIC Vice Chairman Thomas Hoenig in a statement. "Number firm yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to finish too huge to fail and defend the American taxpayer by ending bailouts remains just that: only a goal."

Banks whose living wills are deficient can be subject to more stringent regulation such as requirements to have more capital or restrictions on growth. If they don't fix the identified problems within two years, they can be forced to divest assets.

The regulators continue to evaluate plans for four foreign banks labeled "systemically important," Barclays PLC (), Credit Suisse Group (), Deutsche Bank AG DBKGN. DE, and UBS.

(Reporting by Lisa Lambert; Editing by Chizu Nomiyama)

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