Almost six years after
Lehman Brothers collapsed, U.S. regulators still haven't given Wall Street banks individual feedback on how to improve
so-called "living wills" that detail how to go bankrupt without
spending taxpayer dollars or causing a market panic.
The banks have already had to submit two
versions of the documents, neither of which were up to the standards of the
Federal Deposit Insurance Corp and the Federal Reserve. With the next draft of
the documents due in July, banks say they can do little to improve the plans if
there are no detailed instructions from the government, sources familiar with
the process say.
Some
regulators say that the plans submitted so far by the banks wouldn't provide
much of a roadmap if a new crisis were to threaten a large bank today.
"I don't
think they'd function very well at all," FDIC Vice Chairman Thomas Hoenig
told Reuters last week. "What's different today than in 2008? ... We still
have major exposures from a systemic consequence point of view, and if I were
to say otherwise I wouldn't be doing my duty."
Banks may not
hear back from the government in time for the July deadline. Regulators haven't
decided whether they will give feedback by that time, though they hope to get
something to banks "soon," said Arthur Murton, the FDIC official who
heads the living wills process.
"It's
all moving in the right direction," Murton told Reuters in an interview.
"A year from now we'll be even better positioned."
The 2010
Dodd-Frank law requires banks with more than $50 billion of assets, including JPMorgan Chase & Co and Goldman Sachs Group Inc, to submit annual living
wills that describe how they could be unwound in a bankruptcy process.
Under the
law, regulators could eventually tell banks to shrink or spin off parts of their
business if
they are not convinced the living wills would do their job. However, they won't
likely give such orders until after they have advised the banks individually
about shortcomings in the living wills.
Regulators
said the first round of living wills in 2012 was poorly organized and vague on
critical information, such as how global operations under the purview of
international regulators would be treated. After issuing broad guidelines on
how to improve the documents, the second round, filed in October 2013, was
still deemed insufficient.
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