Fed/FDIC on Living Wills (Apr. 13)

Mike & Co.,

Two weeks after the MetLife decision was handed down, here come the Fed/FDIC living will findings that half of the nation’s eight SIFI banks failed to submit “credible” plans. 

The main policy takeaways from two developments appear at first blush to diverge sharply.   MetLife restricts the authority of the USG (or FSOC) to designate SIFIs, while the Fed/FDIC verdict extends USG’s its reach over the biggest banks further than it has before. 

But from another perspective, the two developments demonstrate the operation of law, slow to engage at first perhaps, and not always linear — but the FSOC appeal might lead on the more confidence In DFA and its successes attack in fighting TBTF and protecting taxpayers.  More below.




The Federal Reserve and FDIC announced today that five of the eight U.S. based global systemically important banks do not have “credible” living wills.  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.  The delinquent banks have until October 1 to bring their plans into order or face stricter regulations.  The next round of wills comes due July 2017.

Report Cards 

Mostly Satisfied:  Citigroup


  • JPMorgan
  • Chase
  • Bank of America
  • Wells Fargo
  • Bank of New York Mellon

Split Decision:

  • Goldman Sachs (FDIC/fail; Fed/pass)
  • Morgan Stanley (FDIC/pass; Fed/fail)

Living Wills vs. Short-termism

The living will process underscores or at least reinforces the theme of fighting short-termism along two fronts.  One obvious, one less so:

  • Penalties Constrain Corporate Finance.  If banks miss the October 1deadline for cleaning up their dissolution documents they are set to face unspecified regulatory increases.  In the past these have taken the shape of limits on stock buybacks, dividend payments, and other corporate finance moves that emphasize short-term profit over long-term investment and growth.
  • Living Wills = Longer-Term ThinkingThe process of writing a living will is inherently a risk-mitigating venture; nobody wants to make plans for their own funeral.  Banks are forced to take a long and hard look in the mirror when writing out these documents, which itself may cause them to behave in a more self-aware manner, or the theory is.

Signs of DFA’s Strength or Weakness?

While some (Neil Kashkari?) might see today’s events as reason to move forward with plans to break up big banks, a more objective view would be that the living wills system is working as intended – if perhaps a bit slowly.  As mentioned above, the system itself takes a two-pronged approach to changing the ways that big banks operate (by punishing inadequately prepared banks and forcing banks to confront their risky behavior and quantify it) which has already resulted in three GSIBs publishing acceptable, if not perfect, will documents.

A Proposal on the Table

At least one way in which regulators can improve upon the living will process, according to the Government Accountability Office, is by increasing their transparency.

In a paper issued yesterday, the GAO said that the Federal Reserve and FDIC should publish the criteria they use to judge wills so that banks will have an easier time meeting their requirements.  The Fed and FDIC have both agreed with the GAO’s assessment, at least in part, and are working on ways to implement those recommendations.  The two regulators have already signaled that they’re on board with the proposal.   Candidates who embrace the idea will be putting their money where their mouth is on financial regulation – signaling that they support regulations but that they have faith in the ability of regulators.

On the topic of transparency: the release this morning gave at least some details on why banks fell short.  JPMorgan, according to the regulators, did not have sufficient models for estimating how it would keep money flowing to its significant operations during a bankruptcy resolution.  Bank of America had a shortcoming in its plan to wind down its portfolio of derivatives.

Regulators are sure to have in mind the CFTC’s ongoing legal battle with MetLife, the giant life insurance company and erstwhile SIFI.  Transparency (a lack of) was a central issue in the MetLife ruling, and has also become the subject of Senate legislation concerning the Commodity Futures Trading Commission.

Consequences & Calendar for the Five 

The five banks which failed outright have until October 1, 2016 to get their wills up to snuff, while the two “split decision” banks were provided with guidance on how to adjust their own plans to better align with regulators’ wishes but won’t face a hard deadline.  Banks are due to submit their next living wills in July 2017.

Beyond the obvious consequences if banks fail to meet the October 1 deadline for updated wills, today’s announcement sets in motion more serious developments.  Under DFA the FSOC can force big banks to restructure or sell off certain assets if they remain too big to fail for too long – today’s findings are another step forward in building that case if regulators decide to pursue such action.





42 thoughts on “Fed/FDIC on Living Wills (Apr. 13)”

  1. I happen to be writing to make you understand what a wonderful experience our princess went through visiting yuor web blog. She realized too many things, with the inclusion of what it is like to possess an incredible teaching style to make the rest without problems understand various very confusing topics. You undoubtedly surpassed visitors’ expected results. Thanks for supplying those warm and helpful, trustworthy, revealing not to mention unique tips on your topic to Tanya.

  2. hey there and thank you for your information – I have certainly picked up anything
    new from right here. I did however expertise several technical points using this web site, since I experienced to reload the web site many times previous to I could
    get it to load properly. I had been wondering if your web host is OK?
    Not that I am complaining, but slow loading instances times
    will sometimes affect your placement in google and
    can damage your high-quality score if advertising and
    marketing with Adwords. Well I am adding this RSS to my email
    and could look out for much more of your respective
    intriguing content. Make sure you update this again soon. 0mniartist asmr

  3. hello!,I like your writing so so much! percentage we communicate extra approximately your post on AOL?
    I need a specialist in this space to resolve my problem.
    Maybe that is you! Taking a look ahead to see you.
    asmr 0mniartist

  4. Having read this I believed it was rather informative.
    I appreciate you taking the time and effort to put this information together.

    I once again find myself spending a significant amount of time both reading and commenting.
    But so what, it was still worth it! asmr 0mniartist

  5. fantastic submit, very informative. I ponder why the opposite experts of this sector do not realize this.
    You should continue your writing. I’m confident,
    you’ve a huge readers’ base already! asmr 0mniartist

  6. I was very happy to uncover this site. I wanted to thank you
    for ones time for this fantastic read!! I definitely liked every bit of it and i also have you book-marked to check out new stuff on your blog.

  7. Hi, I do think this is an excellent web site. I stumbledupon it 😉 I may
    return yet again since I bookmarked it. Money and freedom is the greatest way to change, may you be rich
    and continue to guide others.

  8. We’re a group of volunteers and opening a new scheme in our community.
    Your site provided us with valuable information to work on. You have
    done an impressive job and our whole community will be grateful to you.

  9. This is a good tip particularly to those fresh to the blogosphere.
    Simple but very precise information… Many thanks
    for sharing this one. A must read article!

  10. I like the valuable info you provide in your articles.

    I’ll bookmark your blog and check again here frequently. I’m quite sure I will learn lots of new stuff right here!
    Good luck for the next!

  11. I do trust all of the ideas you’ve presented on your post.
    They’re really convincing and can certainly work. Nonetheless, the
    posts are too brief for newbies. May just you please prolong them a bit from subsequent time?
    Thank you for the post.

  12. I used to be suggested this blog by means of my cousin. I am now not sure whether or not this post
    is written by way of him as no one else realize such specific about
    my problem. You’re wonderful! Thank you!

  13. I loved as much as you will receive carried out right
    here. The sketch is attractive, your authored material stylish.
    nonetheless, you command get bought an impatience over
    that you wish be delivering the following. unwell unquestionably come more formerly
    again as exactly the same nearly a lot often inside case you shield this increase.

  14. I’m pretty pleased to uncover this great site. I want
    to to thank you for ones time for this particularly
    wonderful read!! I definitely liked every part of it and I have you saved as a favorite
    to check out new stuff on your blog.

  15. scoliosis
    Heya i am for the primary time here. I found this board and I to
    find It truly helpful & it helped me out much.
    I am hoping to give one thing again and help others like you aided me.

  16. scoliosis
    After I originally left a comment I seem to have clicked the -Notify me when new comments
    are added- checkbox and from now on each time a comment is
    added I recieve four emails with the exact same comment.
    There has to be an easy method you can remove me from that service?
    Thanks! scoliosis

  17. scoliosis
    I’m not sure exactly why but this website is loading extremely
    slow for me. Is anyone else having this problem or is
    it a issue on my end? I’ll check back later and see if the problem still exists.

  18. dating sites
    With havin so much content and articles do you ever run into any problems of plagorism or copyright infringement?
    My website has a lot of completely unique content I’ve
    either created myself or outsourced but it looks like a
    lot of it is popping it up all over the web without my agreement.

    Do you know any ways to help protect against content from being stolen? I’d truly appreciate it.

    dating sites

  19. Greetings! I know this is kinda off topic but I’d figured I’d ask.
    Would you be interested in trading links or maybe guest authoring a blog post or
    vice-versa? My blog addresses a lot of the same subjects as yours and I think we could greatly benefit from each other.

    If you happen to be interested feel free to shoot me an email.
    I look forward to hearing from you! Terrific blog
    by the way!

  20. Hello! I could have sworn I’ve visited this website before but after looking at a few of
    the posts I realized it’s new to me. Anyways, I’m certainly delighted I came across it and I’ll be bookmarking it and checking back frequently!

  21. I like the valuable info you provide on your articles.
    I will bookmark your weblog and test once more right here regularly.
    I’m quite certain I will be told many new stuff right right
    here! Good luck for the following!

  22. Thanks a bunch for sharing this with all people you actually
    recognise what you’re speaking approximately!
    Bookmarked. Kindly also seek advice from my website =). We
    could have a link exchange agreement among us

  23. Oh my goodness! Impressive article dude! Thank you so much,
    However I am going through issues with your RSS. I don’t know why I cannot subscribe to it.
    Is there anyone else having the same RSS problems? Anyone that knows
    the solution will you kindly respond? Thanks!!

  24. I needed to thank you for this very good read!! I absolutely loved every bit of it.
    I’ve got you book-marked to check out new stuff you post…

  25. Pingback: keto diet and arthritis

  26. I really like what you guys are up too. Such clever work and exposure!
    Keep up the amazing works guys I’ve included you guys to blogroll.

Leave a Comment

Your email address will not be published. Required fields are marked *