Agencies Find Certain Bank Living Wills ‘Not Credible’

In the latest round of public feedback on the “living wills” or resolution plans that the largest banks file to demonstrate they can be wound down in an orderly way, the Federal Reserve and FDIC today deemed the plans filed by Bank of America, the Bank of New York Mellon, J.P. Morgan Chase, State Street and Wells Fargo “not credible” or inadequate to facilitate an orderly resolution under the Bankruptcy Code.

Each of these five firms “must remediate its deficiencies” by Oct. 1, 2016, the agencies said. Meanwhile, the living wills submitted by Goldman Sachs and Morgan Stanley were deemed not credible by one of the two agencies. Neither agency found Citigroup’s plan to be not credible or inadequate to facilitate an orderly resolution, although they did identify issues that Citi must address.

Commonly identified weaknesses in the resolution plans included governance mechanisms, operations, liquidity modeling and the rationalization of the firms’ legal entity structure.

“Today’s results show that both banks and regulators continue to learn from the living wills process,” said ABA President and CEO Rob Nichols. “Banks have made tremendous strides in adding hundreds of billions of dollars in additional capital, improving liquidity and better managing risk since the financial crisis. These efforts ensure the industry is well equipped to handle any economic circumstance that could arise.”

ABA continues to work with regulators to clarify expectations and procedures related to living wills as bankers and regulators alike seek to make the living wills requirement an effective and successful regulatory tool. “Each iteration brings more value for both the regulators and the institutions they supervise, and provides an important roadmap for further work that needs to be done,” Nichols said. “We will continue to maintain an open line of communication to ensure the living wills process keeps improving for both banks and regulators.” The next deadline for resolution plan submissions is July 1, 2017. Most institutions had shortcomings in their 2015 plans that the agencies said must be addressed in next year’s filing. For more information, contact ABA’s Hu Benton.