Regulators Cite Big Banks, Including Goldman Sachs and JPMorgan, Over Living Wills

Summary:

Federal regulators have expressed concerns about the wind-down plans of several major U.S. banks, including Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup. These plans, known as living wills, outline how these banks would manage a potential failure and repay creditors. The Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) identified weaknesses in these plans, questioning their feasibility. Citigroup’s plan, in particular, was criticized, with the FDIC deeming it “not credible” and the Fed noting less severe shortcomings. The banks now have a year to address these issues and submit revised plans by 2025.

This regulatory scrutiny highlights the ongoing importance of robust financial planning and risk management in the banking sector, especially for the largest institutions. Since the 2008 financial crisis, when the collapse of major banks like Lehman Brothers underscored the need for better preparedness, regulators have required the largest banks to develop detailed wind-down strategies. While banks have improved their plans over the years, the recent evaluations show that significant work remains to ensure these institutions can safely navigate potential failures without causing widespread economic disruption.

Our take (from the Straight to Smart newsletter):

Resist the rate cut hype – part 3

Article Excerpt:

Federal regulators on Friday raised doubts about how some of the biggest banks in the country would try to wind themselves down in the event of a failure.

The Federal Reserve and the Federal Deposit Insurance Corp. said wind-down plans from JPMorgan, Chase, Bank of America, Goldman Sachs and Citigroup all had weaknesses, raising questions about their feasibility. The plans, known as living wills, detail how they would wind down operations and repay creditors if they went bust.

Click to read original WSJ article (subscription may be required):
Regulators Cite Big Banks

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