Banking and Finance Law Daily ‘Shortcomings’ found in some big bank living wills
Wednesday, December 18, 2019

‘Shortcomings’ found in some big bank living wills

By John M. Pachkowski, J.D.

Although resolution plans submitted by the eight largest banks were not deficient, some had "shortcomings."

The Federal Reserve Board and Federal Deposit Insurance Corporation announced that they did not find any "deficiencies," which are weaknesses that could result in additional prudential requirements if not corrected, in the resolution plans of the largest and most complex domestic banks. However, plans from six of the eight banks had "shortcomings," which are weaknesses that raise questions about the feasibility of a firm’s plan, but are not as severe as a deficiency. Plans to address the shortcomings are due to the agencies by March 31, 2020.

Each resolution plan, commonly known as a living will, must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company, and include both public and confidential sections.

In feedback letters to Bank of AmericaBank of New York MellonCitigroupMorgan StanleyState Street, and Wells Fargo, the agencies found shortcomings related to the ability of the firms to reliably produce, in stressed conditions, data that is needed to execute their resolution strategy. Examples include measures of capital and liquidity at relevant subsidiaries. In their feedback letters to Goldman Sachs and J.P. Morgan Chase, the Fed and FDIC did not find shortcomings in the plans.

The agencies also announced that Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo had successfully addressed prior shortcomings identified by the agencies in their December 2017 resolution plan review. At that time, the Fed and FDIC notified the banks’ plans had "shortcomings" that should be addressed, such as actionability of divestiture options; criteria for a rational and less complex legal entity structure; and assess the complexity of derivatives and trading activities (see Banking and Finance Law Daily, Dec. 20, 2017).

Commenting on the agencies’ findings, Wells Fargo said, "We are pleased that the Federal Reserve and FDIC found our 2019 Resolution Plan to be free of deficiencies. We believe this result recognizes our successful implementation of an iterative process that further strengthened our resolution planning capabilities, and that our robust resolution planning framework is designed to proactively mitigate potential adverse impacts on the financial system. Wells Fargo is committed to continued strengthening of these established capabilities, and we will address the feedback we received from the agencies in connection with our 2019 Resolution Plan within the time requested."

Companies: Bank of America; Bank of New York Mellon; Citigroup; Goldman Sachs; J.P. Morgan Chase; Morgan Stanley; State Street; Wells Fargo

MainStory: TopStory BankingOperations BankHolding DoddFrankAct FederalReserveSystem FinancialStability PrudentialRegulation Receiverships

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