US banks resubmit bankruptcy contingency plans
07 July 2015
US banking regulators said the 12 largest banks had resubmitted plans for navigating a bankruptcy that would not require a taxpayer bailout.
This marked the third time the banks had been forced to refile their plans, outlining their strategy for a rapid and orderly bankruptcy as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) said yesterday they would begin their review of the new plans.
The government agencies last year found the bank's plans to be lacking and based on unrealistic assumptions. They ordered fixing the deficiencies or face forced divestiture or higher capital requirements. Among the 12 lenders required to submit plans by 1 July are Bank of America Corporation, Barclays, Citigroup Inc, Deutsche Bank AG, Goldman Sachs Group, JPMorgan Chase & Co, Morgan Stanley, UBS and Wells Fargo.
The government agencies also posted public portions of the banks' so-called ''living wills''. The lenders would be required to make sections of their plans public, including explaining the firm's material entities and core business lines, with a view to foster greater transparency in resolution plans.
Citigroup added it assumed senior management, as also the board of directors, would be replaced ''at the behest of regulators'' if it failed.
The banks published detailed manuals of how their business could be shut down in a crisis without requiring government bailouts, a crucial step to prevent being broken up by regulators.
Following the 2007-09 financial meltdown, the lenders were required to submit the so-called "living wills" each year to show how they would proceed though an ordinary bankruptcy during a crisis without government support.
However, the Federal Reserve and the Federal Deposit Insurance Corporation last year said they were not happy about the quality of the plans, and urged banks to improve them, or face tough sanctions including being broken up.
Under the 2010 Dodd-Frank Act regulators had been granted the power to carve up the banks if they jointly deemed the living wills "not credible," though that was only the starting point of a lengthy procedure that gave lenders several chances to improve.