Big Banks Still 'Too Big To Fail'

U.S. regulators said on Aug. 5 that 11 that big banks in the U.S. still do not have viable plans for filing for protection under the bankruptcy law that would avoid causing widespread economic damage.

Both the FDIC and the Federal Reserve have said that the bankruptcy plans submitted by the 11 largest banks rely on “unrealistic or inadequately supported” assumptions, Time magazine reported. The regulatory bodies assert that big banks’ plans do not outline changes in firm structure that would allow the U.S. to avoid broader economic repercussions.

The 2010 Dodd-Frank Wall Street Reform Act requires big banks to submit an annual “living will” that would allow for bankruptcy proceedings that don’t necessitate billions of dollars in taxpayer money. This law was enacted in the shadow of the 2007-08 financial crisis, which necessitated exactly that.

“Too big to fail is alive and well,” Sen. Sherrod Brown, D-Ohio, said in a statement, according to The Wall Street Journal. “The FDIC’s statement that these living wills are not credible means that megabanks will live on taxpayer life support in the event of a crash.” Brown has proposed legislation that would dramatically increase the capital requirements on the largest banks.

The findings applied to the 11 banks with U.S. assets greater than $250 billion, the news source explained. These included Bank of America Corp, Bank of New York Mellon Corp., Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Morgan Stanley, State Street Corp., Credit Suisse Group AG, Deutsche Bank AG, UBS AG and the U.S. units of Barclays PLC.

Representatives of these big banks declined to give the Journal a statement or had no immediate comment at press time. The Financial Services Forum told the news source that banks are safer now than they were pre-crisis, and that “the industry remains strongly committed to ensuring the financial system is less complex, safe, transparent, accountable and capable of fulfilling its role of promoting economic growth and weathering substantial stress scenarios without taxpayer dollars being at risk.”

As a bankruptcy attorney, I’ve always followed the day-to-day of larger banks. Check out some of my previous posts on the subject:

• Bank of America Says Countrywide Bankruptcy Remains an Option
• Banks Unveil Bankruptcy Plans in Living Wills