- Chip Somodevilla/Getty Images
Five Wall Street banks failed to submit effective plans for winding down operations in the event of a bankruptcy, federal regulators said Wednesday.
According to a release from the Federal Deposit Insurance Corp., five “too big to fail” banks did not submit acceptable living wills, or plans of big banks to wind down operations in the event of bankruptcy.
JPMorgan, State Street, BNY Mellon, Bank of America, and Wells Fargo were found to be “deficient” by both the FDIC and the Federal Reserve.
The FDIC also rejected Goldman Sachs’ plan, while the Fed alone found Morgan Stanley’s plan deficient.
Citigroup was the only bank of the eight subject to “too big to fail” regulation to have its plan approved by both regulators.
This is the third round of plans submitted by the Wall Street banks. According to the release by the FDIC, the banks have until October 1 to make remedies to the plans or “the agencies, acting jointly, may impose more stringent prudential requirements on the firm until it remediates them.” These requirements could include increasing capital or liquidity requirements, which could affect profitability.
If after two years the firm does not have a proper plan, the regulators could force the company to divest certain assets to scale back the size of the bank.
According to the release, the next deadline for submitting the wills is July 1, 2017. The measure was part of the Dodd-Frank Reform Act in 2011; the first round of wills was submitted in 2014.
On a conference call after its earnings release Wednesday morning, JPMorgan CEO Jamie Dimon said the firm was “going to do everything we can to fix this issue.” He emphasized that “the liquidity of the company is extraordinary.”
On the same call, JPMorgan CFO Marianne Lake said:
Obviously we were disappointed with the conclusion reached by the joint agencies on our resolution plan that’s out this morning. We’ve taken this planning process very seriously and we believe we’ve made substantial progress. Having said that, the most important thing is that we work with our regulators to understand their feedback in more detail and we’re fully committed to meeting their expectations.
We believe that it’s in everyone’s best interests to end the debate on “Too Big To Fail” and that together with adequate levels of capital, liquidity, TLAC, and stress testing, recovery and resolution plans are critical components and we’re committed to their success.
A Bank of America representative provided the following comment on the ruling to Business Insider:
As the regulators indicated today, we have made progress over the past several years by taking important steps to enhance our resolvability and facilitate an orderly resolution in bankruptcy, but we have more work to do. We will expeditiously address the shortcomings and deficiencies identified, and develop a credible plan that allows for an orderly resolution without taxpayer support. Today’s announcement does not affect our ability to serve our customers and clients and return capital to our shareholders.
A representative from Wells Fargo, which had previously received positive reviews from the regulators, said in a statement:
We were disappointed to learn that our 2015 resolution plan submission was determined to have deficiencies in certain areas. The Federal Reserve Board and the FDIC acknowledged the continued steps Wells Fargo has taken in enhancing its resolution plan and we view the feedback as constructive and valuable to our resolution planning process. We understand the importance of these findings and we will address them as we update our plan by the October 1, 2016 deadline identified by the agencies. We remain dedicated to sound resolution planning and preparedness.
State Street and BNY Mellon were not immediately available for comment.
In a note following the announcement, Barclays analysts compiled a chart with a quick breakdown of the rulings, and which of the six categories – capital reserves, liquidity, governance, operational, legal entity, and trading – the banks were found deficient.