Agencies release public side of big banks’ living wills


July 06, 2017

The Federal Reserve Board and Federal Deposit Insurance Corporation have released the public portions of annual resolution plans, or "living wills," for eight large financial firms. These eight firms are commonly referred to as global systemically important banks or GSIBs.

Under the Dodd-Frank Act, bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically are required to submit resolution plans, commonly referred to as "living wills," to the FDIC and the Fed. Each plan must describe the company’s strategy for rapid and orderly resolution under the U.S. Bankruptcy Code or other applicable insolvency regime in the event of material financial distress or failure of the company. Regulations implementing the requirements of section 165(d) of the Dodd-Frank Act were issued by the FDIC and Fed in November 2011 and are codified at 12 CFR Part 243 and Part 381.

The Fed and FDIC released the public portion of the resolution plans for: Bank of America CorporationBank of New York Mellon CorporationCitigroup Inc.Goldman Sachs GroupJPMorgan Chase & Co.Morgan StanleyState Street Corporation, and Wells Fargo & Company.

SPOE v. MPOE. Most of the banking organizations’ living wills discussed their single-point-of-entry resolution strategy and crisis management framework, sometimes referred to as a "Crisis Continuum" which reflects the financial health of the organization, and calibrated appropriate triggers to indicate the organization’s movement along the resolution process.

On the other hand, Wells Fargo & Company’s plan indicated that the organization opted for a multiple-point-of-entry (MPOE) strategy that utilizes a newly-chartered bridge depository institution for the orderly resolution of its flagship bank, Wells Fargo Bank, National Association. Wells Fargo & Company noted that its MPOE strategy "requires careful analysis of the impacts of a contemporaneous failure of certain material entities under the applicable set of ordinary insolvency regimes."

Prior living wills. In the past couple of years, the review of the organizations’ living wills by the Fed and FDIC had prompted the need to take remedial action to correct any deficiencies.

In April 2016, the agencies provided firm-specific feedback on the eight organizations’ 2015 resolution plans finding deficiencies in the 2015 plans of Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo & Company. The agencies jointly identified weaknesses with regard to the 2015 plans of Goldman Sachs and Morgan Stanley; however, the FDIC and Fed did not make any joint determinations regarding the two plans and their deficiencies. Finally, the Fed and FDIC jointly identified shortcomings in Citigroup’s 2015 plan, particularly with regards to governance triggers; however, neither agency identified any deficiencies. The shortcomings must be addressed in the firm’s July 2017 plan (see Banking and Finance Law Daily, April 13, 2016).

The eight banking organizations submitted targeted submissions to the Fed and FDIC in October 2016 that detailed the organizations’ efforts to address the deficiencies found in Aril 2016. The agencies notified four of the banking organizations—Bank of America, Bank of New York Mellon, JPMorgan Chase, and State Street—that they had addressed the deficiencies in December 2016. However, the Fed and FDIC jointly determined that Wells Fargo did not adequately remedy two of the firm’s three deficiencies, specifically in the categories of "legal entity rationalization" and "shared services." In April 2017, the agencies determined that Wells Fargo & Company had adequately remediated deficiencies found in its 2015 resolution plan. As a result, the firm will no longer be subject to restrictions on the growth of the firm’s international and non-bank activities (see Banking and Finance Law DailyOct. 5, 2016Dec. 14, 2016; and April 25, 2017).

Companies: Bank of America Corporation; Bank of New York Mellon Corporation; Citigroup Inc.; Goldman Sachs Group; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; Wells Fargo & Company; Wells Fargo Bank, National Association

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