April 21, 2016
By Paul Gallagher, Economics Editor, Executive Intelligence Review
Washington, DC – For the third "annual" iteration, the attempted "living wills" of most of the biggest Wall Street banks were found to be unworkable and not credible by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC), which released their judgments today. "Unworkable" specifically means, in this case, that the banks, when failing, are too big and complex to be wound up without taxpayer bailouts, or to be handled in bankruptcy court. It means their failures will devastate the financial system and taxpayers.
Bank of America, JPMorgan Chase, Wells Fargo, State Street Bank, and BONY Mellon were all flunked outright by both agencies. The FDIC's letter to JPM Chase, for example, stated that "the agencies have jointly determined, pursuant to Section 165(d) of the Dodd-Frank Act and Section .5b of the Resolution Plan Rule, that the plan is not credible nor would facilitate an orderly resolution under the Bankruptcy Code."
FDIC vice-chairman Thomas Hoenig went further in a statement: "No firm [there were eight in total-ed.] yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to end too-big-to-fail and protect the American taxpayer by ending bailouts, remains just that: only a goal."
The banks' internal controls having been found unworkable and no barrier to forced bailouts, the Federal Reserve is, in fact, now authorized under Dodd-Frank itself, by no later than Oct. 1, to break up these banks by ordering them to sell off their "non-core" units, of which there are thousands. This point was forcefully made by Stanford economist Dr. Anat Admati at the April 4 hearing on "ending too-big-to-fail" held by Minneapolis Federal Reserve President Neel Kashkari.
Furthermore, these undead banks have now failed their "living wills" for three straight years.
But the Federal Reserve's press release was forked-tongued. It said that if the "living wills" were still unworkable as of Oct. 1, "more stringent prudential requirements" would be authorized. But it also said it planned to evaluate new submissions from the banks on July 1, 2017.
Goldman Sachs's living will was flunked by the FDIC but accepted by the Fed; Morgan Stanley's case was the reverse. Citigroup, known for flunking "stress tests," had its "living will" accepted by both agencies but with "shortcomings."
The living-will requirement was postponed for four foreign banks-Barclays, Deutsche Bank, UBS, and Credit Suisse-which would have made a charade of it in any case.