U.S. regulators fail 'living wills' at five of eight big banks

Wed Apr 13, 2016 6:34pm EDT
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By Lisa Lambert

WASHINGTON (Reuters) - U.S. regulators gave a failing grade to five big banks on Wednesday, including JPMorgan Chase & Co (JPM.N: Quote) and Wells Fargo & Co (WFC.N: Quote), on their plans for a bankruptcy that would not rely on taxpayer money, giving them until Oct. 1 to make amends or risk sanctions.

The move officially starts a long regulatory chain that could end with breaking up the banks. Nearly a decade after the financial crisis, it underscored how the debate about banks being "too big to fail" continues to rage in Washington and exasperate on Wall Street.

The banks failed for reasons ranging from the way liquidity would be housed and shuffled among domestic and foreign subsidiaries to the manner in which executives would communicate problems as they arose during a crisis.

Wednesday's announcement was the first time the two major banking regulators, the Federal Reserve and the Federal Deposit Insurance Corporation, issued joint determinations flunking banks' plans, commonly called "living wills."

If the five, which also included Bank of America Corp (BAC.N: Quote), State Street Corp (STT.N: Quote) and Bank of New York Mellon Corp. (BK.N: Quote), do not correct serious "deficiencies" in their plans by October, they could face stricter regulations, like higher capital requirements or limits on business activities, regulators said.

Accomplishing that task may not be easy: criticized banks have five months to reassess and rewrite wide swaths of their resolution plans to regulators' satisfaction. At the same time, compliance departments will also be focused on regulatory stress tests, whose results will be released before October.

If the deficiencies persist for two years, then the banks will have to divest their assets. They have until July 2017 to address more minor "shortcomings."

The regulators' report coincided with the start of banks' earnings reporting period and bank shares rallied. Shares of JP Morgan, Citigroup and Bank of America all closed up more than 3 percent and Wells Fargo shares were up 2.87 percent.   Continued...

The Bank of America logo is seen at their offices at Canary Wharf financial district in London, Britain, March 3, 2016.  REUTERS/Reinhard Krause