How Each Bank’s ‘Living Will’ Plan Fared With U.S. Regulators

Regulators gave Citigroup Inc. a passing grade on its plan detailing how it would go through a potential bankruptcy, but the “living will” plans from the other big U.S. banks received harsher assessments in evaluations released Wednesday.

Here’s a breakdown of how the Federal Reserve and Federal Deposit Insurance Corp. evaluated each of the big banks.

Bank of America: “Not credible”

Both the Fed and the FDIC told Bank of America Corp. that its living will doesn’t meet the requirements of the 2010 Dodd-Frank law, which requires that firms have credible plans to go through bankruptcy at no cost to taxpayers. They said the Bank needed to improve liquidity models and develop a better playbook outlining how it is prepared for various stages of the bankruptcy process. Regulators also said the bank needed to give more details about how it would wind down its trading operations.

For more on Bank of America, click here.

Bank of New York Mellon: “Not credible”

Both the Fed and the FDIC said said Bank of New York’s living will doesn’t meet the requirements of the 2010 Dodd-Frank law. They detailed a number of reasons the plan was “not credible or would not facilitate an orderly resolution under the U.S. bankruptcy code.” Among them: details of its strategy to create a “bridge bank” to address the continuation of critical operations in bankruptcy.

For more on Bank of New York Mellon, click here.

Citigroup: Passed

Both the Fed and the FDIC said Citi’s living will meets the requirements of the 2010 Dodd-Frank law.

The regulators said Citigroup still needs to make some changes, including developing a more-detailed playbook outlining how it would go through various stages of the bankruptcy process.

Regulators noted how the bank has already gotten significantly smaller. It is now the fourth-biggest U.S. bank by assets, down from No. 1. Regulators also noted that Citigroup had spelled out how it would provide shared services – which could include technology, legal services or human resources- during a wind-down.

For more on Citi, click here.

J.P. Morgan Chase: “Not credible”

Both the Fed and the FDIC told J.P. Morgan Chase, the nation’s largest bank by assets, that its living will doesn’t meet the requirements of the 2010 Dodd-Frank law, identifying four “deficient” aspects of the bank’s plan around its liquidity, legal entity structure, trading portfolios and governance framework.

The regulators said J.P. Morgan has made progress over the years, including reducing cross-border sweep arrangements, its reliance on short-term funding and overall capital position, according to the regulators.

For more on J.P. Morgan, click here.

Goldman Sachs Group: Split decision

The FDIC said Goldman’s living will doesn’t meet the requirements of the 2010 Dodd-Frank law. The Fed stopped short of deeming the bank’s plan “not credible,” but also identified weaknesses that must be addressed.

In a statement, the regulators said Goldman fell short on its process for determining how much liquidity its various units would need to sustain themselves once their parent filed for bankruptcy protection, and that its plan to wind down its portfolio of derivatives “lacked specificity.”

The regulators also found issues with the way the bank would escalate information to senior executives and board members as its troubles deepened, and expressed doubts that Goldman would be able to pull off a proposed recapitalization in the time frame the firm suggested.

For more on Goldman, click here.

Morgan Stanley: Split decision

The Fed said Morgan Stanley’s living will doesn’t meet the requirements of the 2010 Dodd-Frank law, a rebuke that could eventually impose higher capital requirements or other regulatory sanctions on the bank. The FDIC stopped short of deeming Morgan Stanley’s plan “not credible,” but also identified weaknesses that must be addressed.

The regulators took issue with the way Morgan Stanley determined how much liquidity its stand-alone units would need to sustain themselves should their parent file for bankruptcy, and said the bank didn’t offer enough details on its plan to wind down the derivatives contracts housed in its trading businesses. Finally, they ordered Morgan Stanley to include more triggers in its plan that ensure the bank’s board moves quickly to take certain important steps ahead of a bankruptcy filing.

For more on Morgan Stanley, click here.

State Street: “Not credible”

Both the Fed and the FDIC said that State Street’s living will doesn’t meet the requirements of the 2010 Dodd-Frank law, detailing a number of reasons the plan was “not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code,” including concerns about the Boston bank’s legal entity structure and its method for evaluating its liquidity needs in a bankruptcy situation.

For more on State Street, click here.

Wells Fargo: “Not credible”

Both the Fed and the FDIC said Wells Fargo’s so-called living will doesn’t meet the requirements of the 2010 Dodd-Frank law, an unexpected turn after the bank was the only one to get a passing grade in the review previously.

The regulators found three “deficient” aspects of the San Francisco-based bank’s plan, most notably around its governance. The regulators said Wells Fargo’s 2015 plan contained “material errors” that required resubmission of the 2015 plan’s financial information. “These errors call into question the executability of the 2015 Plan, as the lack of effective resolution planning governance raises concerns regarding quality control, senior management oversight, and recovery and resolution planning staffing,” according to the regulators.

The regulators also found deficiencies in the bank’s shared services and bridge strategy as well as its legal entity structure.

For more on Wells Fargo, click here.