Four big banks’ ‘living wills’ (out of eight) still need work (but no resubmission required)

Resolution plans – or “living wills” – of the eight largest banks will not have to be resubmitted, two federal banking agencies said Tuesday, because they do not have “deficiencies” that are weaknesses severe enough to trigger the action.

However, in a release, the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) said four of the banks have “shortcomings” – or “less severe weaknesses” – that will require additional work in their next plan. Those banks are Bank of America, Goldman Sachs, Morgan Stanley, and Wells Fargo.

The two agencies said they did not identify specific shortcomings in the plans from Bank of New York Mellon, Citigroup, J.P. Morgan Chase, and State Street. All eight banks are identified as “systemically important financial institutions” (SIFIs).

The two regulators said that “significant progress” has been made by all eight banks in their resolution plans – such as modifying their corporate structures so that losses can be borne by investors in an orderly way.

However, in a separate statement, FDIC Board Chairman Martin Gruenberg said there are inherent challenges and uncertainties associated with the resolution of a systemically important financial institution.

“Toward that end, the agencies identified four areas in which more work may need to be done by all eight firms to continue to improve their resolvability: intra-group liquidity; internal loss-absorbing capacity; derivatives; and payment, clearing, and settlement activities,” Gruenberg said. “Moreover, the resolvability of firms will change as markets change and as firms’ activities, structures, and risk profiles change.”

Gruenberg said that, as noted in feedback letters send to all of the banks, the agencies expect the firms to “remain vigilant in considering the resolution consequences of their management decisions.”

For all eight firms, the next resolution plans are required by July 1, 2019.

Both the Fed and the FDIC said they continue to explore ways to improve the resolution planning process. The agencies said they are considering extending the cycle for resolution plan submissions from annual to once every two years, reflecting the agencies’ experience regarding the time needed to prepare and review the plans.

Agencies announce joint determinations for living wills

Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation: Determinations on Resolution Plan Submissions of Eight Systemically Important, Domestic Banking Institutions