Dec 17, 2019

Six of the biggest U.S. banks have weaknesses in their crisis plans

In this illustration, a piggy bank is poked with a needle by a man wearing a suit

Illustration: Lazaro Gaimo/Axios Visuals

The Federal Reserve Board and the Federal Deposit Insurance Corporation found shortcomings in the exit strategies — or "living wills" — of six of the eight largest banks in the U.S., it said on Tuesday.

Why it matters: These living wills dictate how big banks handle bankruptcy during financial distress — or a financial crisis. Bank of America and Wells Fargo are among those currently unable to prove that their top decision-makers can confidently act on crisis-level exit strategies.

What the Fed found: The following banks have shortcomings or weaknesses in their ability to reliably produce data needed to execute their living wills in stressed conditions:

  • Bank of America
  • Bank of New York Mellon
  • Citigroup
  • Morgan Stanley
  • State Street
  • Wells Fargo

Yes, but: The Federal Reserve did not find shortcomings in plans from Goldman Sachs and J.P. Morgan Chase. Shortcomings are not as serious as outright "deficiencies," which could result in "more stringent capital and liquidity requirements," the Wall Street Journal reports.

  • "Fed officials have grown increasingly confident that big U.S. banks are safer than they were in 2008, when the financial crisis exposed significant weaknesses in their risk management," per the WSJ.
  • The bank regulators also noted on Tuesday that Morgan Stanley, Bank of America, Wells Fargo, and Goldman Sachs have successfully addressed previous shortcomings outlined in 2017.

What's next: Each of the six banks with shortcomings or weaknesses must submit a plan to address the issues to the Fed and the FDIC by March 31.

Go deeper: Big American banks are doing quite well in 2019

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