Some of the US’s biggest banks still lack a proper plan for bankruptcy, in the event of another major financial crisis, US regulators said on Wednesday.

In the wake of the great recession banks were required to come up with “living wills” to prove they had a credible plan for bankruptcy that would not require another bailout from the taxpayers.

But after reviewing the plans of five institutions – JP Morgan Chase, Wells Fargo, Bank of America, Bank of New York Mellon and State Street Corp – the Federal Reserve and the Federal Deposit Insurance Corp (FDIC) have determined that the banks have yet to meet that requirement.

“The goal to end too big to fail and protect the American taxpayers by ending bailouts remains just that: only a goal,” said Thomas Hoenig, FDIC vice-chairman.

The banks are to submit revised proposals by 1 October.

According to feedback from the regulators, one of the main concerns with JP Morgan’s proposal was the bank’s liquidity in a time of need. Regulators were concerned the bank would not be able to shift money around to fund some of its operation during a time of stress or bankruptcy.

“Obviously we were disappointed,” said Marianne Lake, JP Morgan’s chief financial officer. “The most important thing is that we work with our regulators to understand their feedback in more detail.”

Bank of America also needs better processes for estimating its liquidity needs, the regulators said. And while Wells Fargo was deemed to have “firm-wide, high-quality liquid assets”, regulators raised concerns over “quality control, senior management oversight, and recovery and resolutions planning staffing”.

In its statement, Wells Fargo said it was disappointed its plan was “determined to have deficiencies” but the feedback was “constructive and valuable to our resolution planning process”.

If these banks do not submit acceptable plans by October, regulators could impose sanctions such as higher capital requirements and restrictions on growth.

Goldman Sachs and Morgan Stanley also received their feedback on Wednesday. While Goldman Sachs’s plan passed muster with the Fed, it was deemed wanting by the FDIC. Morgan Stanley, on the other hand, did not meet the legal standards according to the Fed, but the FDIC gave a more positive assessment.

Citigroup was the only bank whose plan was accepted by both agencies. It too, however, received feedback containing shortcomings that it has to fix by July 2017.

The regulators’ rejections of a handful of banks’ living wills is likely to fuel criticism that the banks are still “too big to fail” and could force another huge taxpayer bailout should there be another major financial crisis.

Democratic presidential candidate Bernie Sanders has previously said that if elected president he would try to break up big banks. However, when pushed on exactly how he intended to do that by the New York Daily News editorial board, the Vermont senator struggled to provide a detailed answer.



The process of drafting living wills was introduced in the Dodd-Frank rules brought in by Congress after the financial crisis in order to tackle the systemic risks posed by the collapse of the financial industry.

The process of drawing up the wills is ongoing and that the banking industry is committed to working with the regulators, said John Dearie, CEO of Financial Services Forum – a trade group that represents 16 of the largest banks with the exception of Wells Fargo.



“No financial company should be considered too big to fail. The principal regulators have said that there has been substantial progress in their ability to resolve the largest US financial institutions,” Dearie said. “The Dodd-Frank Act clearly mandates that taxpayer funds can never again be accessed – nor should they. Thus, it is in the best interest of the industry that all large institutions have credible resolutions plans and, with that in mind, institutions will continue to work to address the technical shortcomings identified in this round of regulatory feedback.”

Proposals by Barclays, Credit Suisse, Deutsche Bank and UBS are still under review.