Speed Reads

too big to fail

U.S. regulators reportedly set to reject 'living wills' of several too-big-to-fail banks

As early as this week, the Federal Reserve and FDIC will inform at least half of the U.S. banks deemed systemically important that their "living wills" are inadequate to assure an orderly bankruptcy without a taxpayer bailout, The Wall Street Journal reports, citing "people familiar with the matter." It isn't clear how the dissolution plans of the four banks — J.P. Morgan Chase, Bank of New York Mellon, State Street, and Bank of America — fall short, or how much change is needed to satisfy regulators that the banks aren't "too big to fail." Citigroup is expected to get the green light, The Journal said, and the status of the living wills at Goldman Sachs, Morgan Stanley, and Wells Fargo are not known.

The systemically important U.S. banks had to file their living wills under the 2010 Dodd-Frank financial reform law, and the Fed and FDIC gave general public feedback — most of it negative — in 2014. The banks refiled their plans in 2015, and this round of public feedback will likely be specific and detailed about each bank, The Journal says. The firms whose wills are rejected will have a chance to resubmit them, perhaps in a year, and if they are still found lacking, the regulators could sanction the banks by, for example, raising their capital requirements, which can lower profitability. After two years of sanctions, regulators can force banks to sell off assets. All of the banks have told regulators they believe their living wills are credible.