The Federal Reserve and Federal Deposit Insurance Corporation criticized 11 of the nation’s biggest banks Aug. 5 for their failure to create adequate plans for dismantling themselves in the event of a financial crisis in a way that would not harm the overall financial system, USA Today reported.
Federal regulators have ordered the banks to submit revised blueprints for dismantling by July 1, 2015. Under the 2008 Dodd-Frank Act, large banks and non-bank financial firms must create resolution plans detailing how they can be wound down in the event of a bankruptcy so as to avoid damage to the global financial system.
Regulators said their biggest concerns about the banks’ inadequate “living wills” revolved around their unrealistic assumptions about customer, investor, counterparty, central clearing facility and regulator behavior in the event of a financial crisis.
The Fed and FDIC said the banks need to create “a rational and less complex legal structure that would take into account the best alignment and business lines to improve the firm's resolvability,” USA Today reported.
Sen. Elizabeth Warren, D-Mass., is among the critics in Congress who said the government likely would have to bail out big banks in the event of another financial crisis. She has called for a break-up of the country’s biggest banks.
The 11 banks and financial firms reprimanded in the regulator’s report included Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corp. and UBS.