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The Board of Governors of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) announced Tuesday that they had completed the review of the second round of resolution plans submitted by 11 large banks.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that banking organizations with total consolidated assets of $50 billion or more periodically submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation. The plans are commonly referred to as “living wills”.
Each plan must describe the company's strategy orderly resolution in the event of the failure of the company or severe financial distress. The 11 firms in the first wave of filers include Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corp., and UBS.
The agencies noted that the review of the resolution plans highlighted some improvement on from the first submissions in 2012. However multiple common failures still remain that must be addressed in the submissions next year.
These common failures include: “assumptions that the agencies regard as unrealistic or inadequately supported, such as assumptions about the likely behavior of customers, counterparties, investors, central clearing facilities, and regulators.”
Another defect noted was “the failure to make, or even to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for orderly resolution.”
The letters to each first-wave filer detail the specific shortcomings of each firm's plan and the expectations of the agencies for the 2015 submission. The next installment of plans is due no later than July 1, 2015.
