No, the banks are not dying. Regulators just want to make sure that the economy does not die in case the big ones go.

Five of the biggest U.S. banks have failed the living wills test and could face stricter requirements, federal regulators said on April 13.

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) both rejected the resolution plans of Bank of America, JPMorgan Chase, Bank of New York Mellon, Wells Fargo and State Street. The regulators found out that in the event of a financial crisis or bankruptcy, none of these banks can show a systematic way out without resorting to a bailout.

"The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systematically important financial institutions demonstrate a clear path to an orderly failure under bankruptcy at no cost to taxpayers," asserted Martin Gruenberg, FDIC chairman.

The regulators did give Citigroup a passing grade, but they found some shortcomings. The plan of Goldman Sachs was rejected by the FDIC while that of Morgan Stanley was faulted by the Fed. Since the rejection did not come from both regulators, the Goldman Sachs and Morgan Stanley plans were not considered "not credible."

The regulators continue to examine the plans of four foreign banks considered systematically important, namely Barclays, Credit Suisse, Deutsche Bank and UBS.


The assessed banks failed for various reasons but mainly shortcomings on liquidity requirements, operations and governance.

For example, Citigroup did not have governance mechanisms for a timely funding of its subsidiaries. The plan also lacked the ability to accurately estimate the amount of minimum operating liquidity.

Bank of America's plan also did not include a process of estimating liquidity requirements, determining the triggers to inject liquidity and making it available to its important entities.

Goldman Sachs' plan had shortcomings in the operational aspect of carrying out a resolution in a timely manner, aside from a deficiency in liquidity management for each material entity to operate.

Deficiencies in liquidity management and governance mechanisms were also found in Morgan Stanley's plan, as well as non-inclusion of hedging costs for winding down its trading portfolio and incomplete details on the size and composition of the portfolio.

The banks have unti Oct. 1 to iron out the deficiencies.


JPMorgan's bank executives expressed disappointment over the findings. "It's more about reporting, legal entities and things like that. And if other firms can satisfy that I'd be surprised if we can't," said the bank's chief executive Jamie Dimon, adding the bank has "tons of liquidity."

Wells Fargo, Bank of New York Mellon and State Street all said in separate statements that they will do their best to address the deficiencies by the set deadline.

The U.S. Chamber of Commerce shares its own thoughts on the living wills process, saying the process "is broken."

"Contradictory outcomes through different tools such as stress tests and living wills harm the ability of regulators to achieve financial stability and for market participants to understand what regulators are doing," quipped David Hirschmann, head of the chamber's capital markets center.

Possible Leak

Meanwhile, the watchdogs of the Fed and the FDIC are looking into the possibility of a leak to the Wall Street Journal. The living wills assessment results were first reported on Tuesday evening in the Journal and made public on Wednesday.

Senator Bob Corker, R.-Tenn., who is a member of the Senate Banking Committee, found the leak baffling, adding that it erodes the credibility of the exercise and cripples the assessment process. He said that he expects the person or persons responsible to face the consequences.

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