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Banks Resubmit Resolution Plans to Regulators

By Kendall Baer

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) recently posted the public portions of the required "targeted submissions" for the eight systemically important, domestic banking institutions in order to better increase transparency.

In April of this year, the agencies jointly determined that each of the 2015 resolution plans, or “living wills,” of Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo were not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. As such, the agencies issued joint letters to these firms detailing the deficiencies in their plans and the actions the firms must take to address them, basically saying the banks were required to prove to the government they are not “too big to fail.” If a firm has not remediated the identified deficiencies, it may be subject to more stringent prudential requirements.

Additionally, the agencies identified weaknesses in the 2015 resolution plans of Goldman Sachs, Morgan Stanley, and Citigroup that the firms must address in their 2017 plans. These firms were also required to file a targeted submission by October 1, 2016, detailing the efforts taken to improve their weaknesses.

The Dodd-Frank Act requires bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve to periodically submit resolution plans to the Federal Reserve and FDIC. Each plan must describe the company's strategy for rapid and orderly resolution under the U.S. Bankruptcy Code in the event of material financial distress or failure of the company.

All eight entities submitted their resolution plans on or before the October 1 deadline but had they not, the agencies could impose more stringent prudential requirements on the firm until it remediates them. Additionally, following a two-year period beginning on the date of the imposition of such requirements, if a firm still has failed to adequately remediate any deficiencies, the agencies, in consultation with the FSOC, could require the firm to divest certain assets or operations to facilitate an orderly resolution of the firm in bankruptcy.

The agencies are posting the public portions of the targeted submissions, as provided by the firms, on the FDIC and Federal Reserve websites. Taking a look at the submissions, it was notable to mention that Bank of America wrote in their plan they feel they have already remediated two of their shortcomings (Liquidity and Government Mechanisms) and made significant progress on the third despite the fact that the agencies do not require full remediation until July 1, 2017.

Likewise, according to JPMorgan Chase’s plan, they made significant changes to many of the core elements of their resolution plan and how they run their business. “Our objective was to significantly improve the certainty and timeliness of management and board actions and support, and to provide more flexibility and options in times of stress.”

For Citigroup, which was was the only firm out of the eight whose living will plan was not determined by either agency to be not credible, the agencies did identify shortcomings in Citigroup’s plan that the firm addressed.

Neither the confidential nor the public portions of the resolution plans have been reviewed yet by the agencies but the statement from the Federal Reserve stat that the agencies will now be initiating their process for review.

To read the public resolution plans from these firms, click HERE.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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