The Government Accountability Office claimed that big banks do not have enough information oh how U.S. regulators evaluate their plans to wind down operations during a crisis without the help of public money. They are also scrambling to meet the annual deadlines for filing a "living will."
According to Reuters, the nonpartisan agency audits federal programs and offices. It stated in a report released on Tuesday that the U.S. Federal Reserve and the Federal Deposit Insurance Corp "have not disclosed their frameworks for determining whether a plan is not credible."
The requirement for a "living will" was a part of the Dodd-Frank Wall Street reform legislation passed in the wake of the 2007-2009 financial crisis. This was when the U.S. government spent billions of dollars on putting up bails to keep big banks from failing and destroying the U.S. economy.
Under the Dodd-Frank, the federal government has the power to cut off a bank if regulars do not believe its plan is workable. In recent years, the federal government has also faulted more than a dozen banks for drafting overly optimistic or not credible plans, CNBC claimed.
The Wall Street Journal reported that at least half of the eight American banks recognized as "systematically important" by the global regulators, including J.P. Morgan Chase & Co., are expected to obtain a ruthless verdict on their living wills. They were required to submit these living wills under rules created since the financial crisis wanted to prevent another bank bailout.
The assessment by the Federal Reserve and Federal Deposit Insurance Corp, who has been longed-for, is not yet final and could still change. However, the regulators are putting some details together with their feedback to the firms and will create their views public soon.
Banks that filed and submitted living wills that the two regulators do not find credible can face higher capital requirements. They will also face a stricter regulation.
"Without greater disclosure, companies lack information they could use to assess and enhance their plans," the GAO stated in its report. The GAO also added, "The regulators view such information as confidential, but a federal directive on open government recognizes that transparency promotes accountability by providing more information on government activities." The GAO expressed that the lack of information "could undermine public and market confidence in resolution plans."
Meanwhile, the GAO also found out that larger companies generally claimed that the resolution planning headed to some operational improvements. But still, both of the companies and regulators stated that their costs were going up under the process.
