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Wall Street Banks to Resubmit Resolution Plans

7 August 2014 - News - Editor

When U.S. banks deemed too-big-to-fail were in danger of failing in 2008, the government stepped in and bailed these banks out, largely at the expense of taxpayers. The reasons for this unprecedented action, which raised a storm of protest from many quarters, were many, and the matter of accountability remains a much debated issue. In 2010 the Dodd-Frank act was passed in an attempt to strengthen regulation of large financial institutions and thereby avoid the necessity of government bailouts in the future. As part of the new regulations, banks were required to submit Resolution Plans, more commonly referred to as ‘living wills’, detailing strategies for going through the bankruptcy procedure in a controlled and orderly manner should this ever become necessary.

The FDIC and the Federal Reserve have the task of reviewing resolution plans submitted by banks, and a recently released statement by Jeremiah O. Norton, Board Member of the Federal Deposit Insurance Corporation (FDIC), revealed that the 'living wills' submitted by eleven banks in October 2013, failed to "meet the threshold required under statute that the plans be credible and facilitate an orderly bankruptcy."

Vice Chairman of the FDIC, Thomas M. Hoenig, noted in a statement that although the banks had submitted thousands of pages of material, their plans failed to provide a "credible or clear path through bankruptcy that doesn't require unrealistic assumptions and direct or indirect public support".

The FDIC and Federal Reserve are separately issuing new instructions to these financial institutions - which include Goldman Sachs, JPMorgan Chase, Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Morgan Stanley, Deutsche Bank, State Street and UBS - to address certain issues in their Resolution Plan submissions due on July 1, 2015.

 


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