WASHINGTON (AP) – Federal regulators say five of the biggest banks in the U.S. failed to develop adequate plans for how they might reshape themselves in case of bankruptcy, which could leave them unable to survive without another taxpayer bailout.
JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street Bank were cited Wednesday by the Federal Reserve and the Federal Deposit Insurance Corp. for gaps in their bankruptcy plans known as “living wills” that they were required to submit. The five banks – with a total of about $5.6 trillion in assets – were among eight Wall Street behemoths whose plans were evaluated.
The two agencies found the five banks’ plans are “not credible” or insufficient for an orderly restructuring in the event of bankruptcy. The regulators gave the banks an Oct. 1 deadline to fix the problems or face possible “more stringent” requirements. That could include ordering the banks to beef up their capital cushions against unforeseen losses. If the regulators still weren’t satisfied, banks eventually could be forced to sell off assets.
The big banks are in strong financial shape and are facing no threat of collapse. They sit on sturdy bases of capital that the regulators ordered them to shore up in recent years. The banking industry as a whole has recovered steadily since the financial crisis, racking up climbing quarterly profits.
Rather, the “living will” assessments are part of the regulators’ effort to avoid another taxpayer bailout of Wall Street banks in a crisis and to end the marketplace perception that the government would step in and rescue them. Under the 2010 overhaul law, the FDIC has the authority to seize and dismantle big financial firms that could collapse and threaten the broader system. The banks’ “living wills” could serve as guidelines for possible breakups by the government.