BUSTED: 7 Out Of 8 Major Banks FAIL Fed's Bailout Test

TOO BIGGER TO FAIL

JPM, BofA, Wells Fargo, BNY Mellon, State Street, Goldman and Morgan Stanley failed.

There were 2 tests, one conducted by the Fed and another handled by the FDIC. Five banks failed both tests, and two more banks failed one. Only Citigroup passed the 'living wills' test from both regulators. Lord knows how that happened.

The FDIC alone determined that the plan submitted by Goldman Sachs was not credible, while the Federal Reserve Board on its own found Morgan Stanley's plan not credible. Citigroup's living will did pass, but the regulators noted it had "shortcomings."

FDIC Vice Chairman Thomas Hoenig: "No firm yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal."

Five Big Banks' Living Wills Are Rejected by U.S. Regulators

Bloomberg -- JPMorgan Chase & Co., Bank of America Corp. and three other major U.S. banks failed to persuade regulators they could go bankrupt without disrupting the broader financial system and could now face a tighter leash from Washington after government agencies used one of the most significant post-crisis powers bestowed under the Dodd-Frank Act.

The banks -- also including Wells Fargo & Co., Bank of New York Mellon Corp. and State Street Corp. -- must scrap their resolution plans, or living wills, after the Federal Reserve and the Federal Deposit Insurance Corp. said versions submitted last year failed to satisfy their requirements. The lenders will have until Oct. 1 to rewrite the plans -- but under the pressure that another failure would give regulators power to subject them to more capital or liquidity constraints on their businesses.

“The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systemically important financial institutions demonstrate a clear path to an orderly failure under bankruptcy at no cost to taxpayers,” FDIC Chairman Martin Gruenberg said in a statement Wednesday.

While the rejected banks face the arduous process to overhaul strategies that in some cases run into thousands of pages, Citigroup Inc. can breathe a sigh of relief, having won provisional approval from both regulators. Goldman Sachs Group Inc. and Morgan Stanley also escaped having their plans termed “not credible,” but only because they didn’t get failing grades from both agencies. Goldman Sachs’s plan was faulted by the FDIC and Morgan Stanley’s by the Fed.

The living-wills exercise was a key check on the biggest banks written into Dodd-Frank, the regulatory overhaul prompted by the 2008 financial crisis. The fall of Lehman Brothers Holdings Inc. in September 2008 demonstrated what could happen when huge, complex financial firms land in bankruptcy court, so the resolution plan process was designed to ensure big banks in the U.S. can be wound down quickly without taking others with them.

The worst-case scenario for a bank that continually fails to present credible plans is that regulators eventually could get authority to break them up, according to the law. Those are uncharted waters, because this marks the first time regulators have taken the initial step to find fault.

“We’re going to do everything possible to fix this issue,” JPMorgan Chairman and Chief Executive Officer Jamie Dimon said Wednesday in a conference call after the bank reported first-quarter results. Marianne Lake, JPMorgan’s chief financial officer, added that the bank is disappointed, but it should only face a modest expense to fix the plan.

Continue reading at Bloomberg...

Comments

[DailyBail]

JPMorgan Chase & Co. reported earnings that beat analysts’ estimates, kicking off a rally in U.S. bank stocks that withstood a regulatory setback.

http://www.bloomberg.com/news/articles/2016-04-13/jpmorgan-results-trump-fed-s-living-will-rejection-spark-rally

[john]

Keep an eye on Terra Nova (JPM)


Terra Nova Renewable Partners, A Partnership Between SunEdison And Clients Advised By J.P. Morgan Asset Management - Global Real Assets, Buys 33 Percent Stake in 336 Megawatt DC Solar Portfolio from Dominion


http://www.prnewswire.com/news-releases/terra-nova-renewable-partners-a-partnership-between-sunedison-and-clients-advised-by-jp-morgan-asset-management--global-real-assets-buys-33-percent-stake-in-336-megawatt-dc-solar-portfolio-from-dominion-300197802.html

-- Terra Nova Renewable Partners acquires 33 percent stake for an equity purchase price of $180 million plus a working capital adjustment

-- SunEdison has the option to purchase the assets held by the partnership within five years

-- The partnership, through an indirect subsidiary, has the option to purchase Dominion's remaining 67 percent interest upon the occurrence of certain triggering events

[DailyBail]

Clinton Says Banks Must Live Up to Obligations on Living Wills “If these banks don’t fix their problems over time, then regulators need to break them apart,” Hillary Clinton says in statement.

[DailyBail]

Are Lawyers Secretly Happy Regulators Rejected Big Banks’ ‘Living Wills’?

http://bol.bna.com/are-lawyers-secretly-happy-regulators-rejected-big-banks-living-wills/

[DailyBail]

Dennis Kelleher, CEO of Wall Street watchdog non-profit Better Markets, praised the Fed and FDIC for “rejecting the relentless lobbying of Wall Street and its lawyers.” “It is past time for Wall Street to stop playing games and submit credible living wills proving they can be resolved in bankruptcy without any taxpayer bailouts,” said Kelleher.

http://thehill.com/policy/finance/banking-financial-institutions/276209-washington-wall-street-fume-after-living-wills