In a setback for big banks, federal regulators on Tuesday ordered Bank of America and 10 other institutions to make major improvements to plans for dismantling themselves in a time of financial distress.
Under the 2010 Dodd-Frank financial reform act, the 11 banks were required to submit “living wills” outlining how they could be taken apart in bankruptcy without disrupting the broader financial system. The goal is to prevent another round of government bailouts in a future crisis.
On Tuesday, the Federal Reserve and the Federal Deposit Insurance Corp. said the banks’ 2013 plans had shortcomings that must be addressed by July 2015. If those plans are found deficient, the regulators could require banks to hold more capital, restrict their growth or even require divestitures, a Federal Reserve official told the Observer.
Regulators are sending specific letters to each bank but found some consistent themes in their deficiencies: unrealistic assumptions and the failure to make, or even identify, structural changes necessary for orderly resolutions of their companies.
“Despite the thousands of pages of material these firms submitted, the plans provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support,” Thomas Hoenig, the FDIC’s vice chairman, said in a statement.
A Bank of America spokesman declined to comment.
The Dodd-Frank law requires banks with at least $50 billion in assets and other nonbank financial companies to submit living wills to the Fed and FDIC. Charlotte-based Bank of America, along with rivals such as JPMorgan Chase and Citigroup, were in the first wave of filers in 2012.
The regulators said the 2013 plans showed some improvements from the banks’ original submissions but not enough to pass muster. Officials are still reviewing 2014 submissions.
Regulators publicly released a portion of the 2012 plans, although the excerpts provided few details about the banks’ strategies. The regulators on Tuesday said they were exploring ways to improve the transparency of future submissions.