Regulators said JPMorgan Chase and other banks failed to show that they could be safely unwound during bankruptcy. | AP Photo Big Banks still too big to fail Bank of America, JP Morgan, other banks fail key regulators test.

Regulators Wednesday morning flunked five of the country's biggest banks on a key test of whether they are "too big to fail" by rejecting the firms' plans for winding themselves down during bankruptcy.

The vote of no confidence raises questions about whether safeguards put in place by the 2010 Dodd-Frank law are going to prevent another bank bailout. It will require banks to reorganize so that their failure would be less likely to force taxpayers to foot the bill.


"The goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal," Thomas Hoenig, vice chairman of the FDIC, said in a statement.

FDIC and the Federal Reserve released their assessment of banks' plans for breaking themselves up, required under Dodd-Frank, just as most are due to begin reporting their quarterly earnings. The regulators said JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street failed to show that they could be safely unwound during bankruptcy — and deemed their plans "not credible," a key trigger that ratchets up regulatory pressure on the banks.

"This announcement is a very big deal. It's scary," said Sen. Elizabeth Warren, the liberal Massachusetts Democrat who has called for a breakup of the biggest financial institutions. "And it means that, unless these banks promptly address the concerns identified by the regulators, the government must push these banks to get smaller and less complex."

The plans regulators rejected Wednesday were banks' latest tries after the Fed and FDIC said previous drafts were insufficient in 2014.

The agencies are requiring the banks to address the shortcomings by Oct. 1 or potentially face tougher regulatory requirements. If the banks continue to fail to satisfy the regulators, they could eventually be placed on a years-long path to a potential government-imposed breakup.

The agencies found problems with the living wills of Goldman Sachs and Morgan Stanley, but stopped short of jointly flunking them. Instead, the FDIC alone said Goldman's living will was formally "not credible" and the Fed gave the same designation to Morgan's.

The agencies found shortcomings with Citigroup's plan but neither agency moved to put the company under the same level of scrutiny as the five banks that received the toughest treatment. Citigroup, which received a bailout in 2008, has gotten smaller in recent years.

"The message is cutting the systemic footprint and Citi is the only one to take such dramatic steps to do so," Federal Financial Analytics managing partner Karen Shaw Petrou said.

The banks said they planned to work with regulators to address their concerns. A senior agency official said the five banks that regulators singled out should be able to make the required changes by Oct. 1 but that it might entail difficult choices for some of them.

JPMorgan CEO Jamie Dimon defended the bank on an earnings call with analysts Wednesday, saying, "the liquidity of the company is extraordinary."

The deadline for the eight banks to submit their next full living wills, in which regulators want the firms to address the shortcomings, is July 1, 2017.

The rebuke did not catch banks by surprise.

"It could have been considerably worse," Capital Alpha Partners financial policy analyst Ian Katz said. "The banks are essentially getting a do-over, the way an impatient but tolerant high school teacher might let a student retake a math test."