The Federal Deposit Insurance Corporation and the Federal Reserve jointly failed the plans, commonly called "living wills", of Bank of America Corp (>> Bank of America Corp), Bank of New York Mellon Corp (>> Bank of New York Mellon Corp), J.P. Morgan Chase & Co (>> JPMorgan Chase & Co.), State Street Corp (>> State Street Corp) and Wells Fargo & Co (>> Wells Fargo & Co).
The three remaining large, systemically important banks – Goldman Sachs Group Inc (>> Goldman Sachs Group Inc), Morgan Stanley (>> Morgan Stanley) and Citigroup Inc (>> Citigroup Inc) – did not fare much better, but sidestepped potential sanctions as they were not given joint determinations.
The following is a summary of the deficiencies highlighted by the regulators and the amendments the asked for to the "living wills" at each of the eight banks:
WELLS FARGO:
Governance:
Wells Fargo's resolution planning governance is deficient, which put into question if the bank could execute its "living will".
Operational:
The lender has to identify all critical services necessary to support its material entities and regional units.
Legal Entity Rationalization:
The plan lacks clarity on whether the bank's legal structure could facilitate the execution of its strategy.
MORGAN STANLEY:
Liquidity:
Morgan Stanley does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, its material entities.
Derivatives and trading activities:
The plan should include hedging costs associated with actively winding down its trading portfolio and provide more details on the size and composition of the portfolio.
Governance Mechanisms:
A shortcoming was found regarding the governance mechanisms necessary to facilitate a timely execution of the planned funding and recapitalizations of certain material entities.
GOLDMAN SACHS:
Liquidity:
Goldman's plan does not detail the specific level of liquidity needed by each material entity to operate.
Derivatives and trading activities:
The plan lacks details regarding the winding down of its derivatives portfolio.
Governance Mechanisms:
The mechanisms necessary to facilitate a timely execution of the planned funding and recapitalizations of subsidiaries was identified as a shortcoming.
Operational:
The bank needs to conduct a preparedness test to ensure that operational aspects of a resolution could be carried out in a timely manner.
JPMORGAN:
Liquidity:
JPMorgan does not have appropriate models and processes for estimating and maintaining sufficient liquidity at, or readily available to, its material entities.
Legal Entity Rationalization:
The bank should provide specific analysis regarding the recapitalization under a range of failure scenarios.
Derivatives and trading activities:
The company's trading activities are deficient.
Governance Mechanisms:
The bank has not demonstrated adequate governance mechanisms for the timely execution of its resolution strategy.
BANK OF AMERICA:
Liquidity:
BofA does not have a suitable model and process for estimating and maintaining sufficient liquidity at, or readily available to, its material entities.
Governance Mechanisms:
The plan does not include triggers to inject capital and liquidity into the bank's material entities.
Derivatives and trading activities:
The firm's plan to wind down its derivatives portfolio was found to be deficient.
CITIGROUP:
Governance Mechanisms:
The regulators identified a shortcoming regarding Citigroup's governance mechanisms necessary to facilitate a timely execution of the planned funding and recapitalization of its subsidiaries.
Derivatives and trading activities:
A shortcoming was found in the bank's plan to wind down derivatives positions in its non-core businesses.
Liquidity:
The plan does not indicate that the company had developed a process to fully estimate the amount of minimum operating liquidity.
BANK OF NEW YORK MELLON:
Operational:
The bank's strategy to address continuation of critical operations in resolution is deficient.
Legal Entity Rationalization:
The bank's legal entity structure has deficiencies.
STATE STREET:
Operational:
The bank needs to identify all critical services and maintain a mapping of how and where these services support its core business lines.
Legal Entity Rationalization:
The plan must include an adequate framework for determining when the benefits of resolution planning outweigh increasing complexity.
Capital:
The methodology used to determine the capital needed by material entities at the point of resolution to support the execution of the resolution strategy is deficient.
Liquidity:
The bank does not have a proper model and process for estimating its liquidity needs to fund material entities.
(Reporting by Nikhil Subba in Bengaluru; Editing by Savio D'Souza)