Fed, FDIC announce 2019 ‘living will’ results; six banks with plan ‘shortcomings’ to address those by March 31

Resolution plans submitted to federal regulators by six of the eight banks that were required to submit them for 2019 showed “shortcomings” in the banks’ ability, in stressed conditions, to “reliably” produce the data needed to execute their strategies if needed, the two agencies said in a release Tuesday.

In their joint release, the Federal Reserve Board and Federal Deposit Insurance Corp. (FDIC) said they found that none of the eight plans submitted by the eight largest, most complex domestic banks had “deficiencies,” or weaknesses that could result in additional prudential requirements if not corrected. “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,” the agencies said. They said plans to address the shortcomings are due to the agencies by March 31, 2020.

Resolution plans, commonly known as living wills, describe a bank’s strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure.

The Fed and FDIC said they found shortcomings in the plans of Bank of America, Bank of New York Mellon, Citigroup, Morgan Stanley, State Street, and Wells Fargo. Examples include measures of capital and liquidity at relevant subsidiaries.

The agencies found no shortcomings in the plans from Goldman Sachs and J.P. Morgan Chase, they said.

The Fed and FDIC jointly sent feedback letters to the eight banking institutions and made those available online. For the six firms whose plans have shortcomings, the letters detail the specific weaknesses and the actions required. “Overall, the letters note that each firm made significant progress in enhancing its resolvability and developing resolution-related capabilities but all firms will need to continue to make progress in certain areas,” the agencies said.

To that end, the letters confirm the agencies expect to focus on testing the resolution capabilities of the firms when reviewing their next plans. “Resolving a large bank would be challenging and unprecedented, and the agencies expect the firms to remain vigilant as markets change and as firms’ activities, structures, and risk profiles change,” the agencies said.

The agencies also announced on Tuesday 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.

Release: Agencies find no deficiencies in resolution plans from the largest banks; find shortcomings for several firms

Feedback letters:
Bank of America Corporation (PDF)
The Bank of New York Mellon Corporation (PDF)
Citigroup Inc. (PDF)
The Goldman Sachs Group, Inc. (PDF)
JPMorgan Chase & Co. (PDF)
Morgan Stanley (PDF)
State Street Corporation (PDF)
Wells Fargo & Company (PDF)