The living wills of five big U.S banks must be revised, according to regulators, or else face regulatory sanctions. These banks need to revise their bankruptcy plan without placing the burden on taxpayers and consumers.
The Federal Reserve and the Federal Deposit Insurance Corp. have reminded J.P Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Bank of New York Mellon Corp, and State Street Corp. to revise their bankruptcy plan because it does not meet the legal standards of the Dodd-Frank Law crafted in 2010. The law requires all banks to have a credible plan against bankruptcy as per The Wall Street Journal.
According to New York Times, former Massachusetts congressman Barney Frank, who is also one of the architects of the Dodd-Frank Law, said that the regulators believe they still have a lot of work to do regarding the 'too big to fail' issue but he believes that they are making progress.
Regulators have already asked the five big US banks to make necessary revisions to their so-called living will. They have already seen significant flaws and weaknesses on the plans presented by these banks. The regulators imposed an October 1 deadline otherwise, they will be forced to impose higher capital requirements, restrict the banks growth and other probable sanctions.
As reported by Reuters, JP Morgan has already made some notable progress in some areas. The bank, however, has some key vulnerabilities which include its inability to estimate the needed liquidity and funding needed for bankruptcy resolution.
Among the eight large US banks, it was only Citigroup's plan that was not rejected by the Fed and the FDIC. The agencies, however, noted that Citigroup still had shortcomings and will have to address it by the year 2017.
The agencies found out that the living wills these eight US banks have submitted are very important in a systemic financial institution which is seen as large enough that any distress can place the economy in danger.
Martin Gruenberg, the chairman of FDIC, said these steps are significant in achieving the goal. He added that the agency promises to carry out every mandate that will prevent the failure of these banks which in turn will save taxpayers from carrying the burden.
