Skip to content

TBTF alive and well in the US

The Federal Reserve and the FDIC announced today that the living wills of five large American banks are determined as “non-credible”. Citigroup’s was the sole systemically-important bank whose submission passed the scrutiny of both Regulators. Bank of America, Bank of New York Mellon, JPMorgan, State Street and Wells Fargo each have until 1 October 2016 to remediate and resubmit their respective plans.

Joint determinations confer a wider range of powers upon the Regulators, allowing the imposition of higher capital, leverage and liquidity requirements, and restrictions on business, culminating in the ultimate sanction of forced asset divestiture. The two agencies reached a split verdict on the resolution plans of Goldman Sachs and Morgan Stanley. Resolution plans are assessed on seven key areas: capital, liquidity, governance mechanisms, operational capabilities, legal entity rationalization, derivatives and trading activities and responsiveness (to Regulators). Assuming their October re-filings are judged credible, the next annual living will submission deadline is 1 July 2017.

“Each plan has shortcomings or deficiencies, although as the letters emphasize, some firms have made more progress than others.Most importantly, 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.”-FDIC Vice Chairman Thomas Hoenig.

The agencies are continuing to assess the resolution plans for four non-US banks: Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, and UBS Group AG.

Contact Us