Nine of the largest US banks have submitted plans offering guidelines for how the government could break up and sell off their assets if they are in danger of failing.
The Federal Deposit Insurance Corp (FDIC) released on Tuesday summaries of the “living wills” for Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS.
The plans were required under the 2010 financial overhaul, which gave regulators the power to seize and dismantle banks that threaten the broader financial system.
The US government is trying to prevent another situation in which taxpayers are asked to provide bailouts to banks, which is what happened during the 2008 financial crisis. At the time, regulators didn’t have rules in place to unwind banks considered “too big to fail.”
More than 100 other banks are required to submit living wills by the end of next year. All banks are required to update their living wills annually or sooner, if there’s a material change in the company.
The lenders were asked to detail their assets and debts, how they are tied to other companies and how they would be wound down in a fast and orderly bankruptcy process.
Most of the information had already been made public by the companies in regulatory filings. More detailed plans provided to regulators were not made public because they included proprietary information.
JPMorgan Chase, the largest US bank by assets, talked about maintaining a sufficient global liquidity reserve to deal with problems that might arise. At the end of last year, it estimated that reserve to be approximately US$379 billion.
The bank also said its living will “provides for the resolution of the firm in a rapid and orderly way that, in the firm’s view, would not pose systemic risk to the US financial system.”
Citigroup made a similar statement in its summary. Goldman Sachs said it believes all financial institutions, regardless of size, should be able to undergo a bankruptcy process without costing taxpayers.
However, the US Federal Reserve and FDIC have the last word. If they decide a bank’s plan is not adequate, the regulators can require the company to raise more capital, tamp down on growth or even sell off units.