Industry News

Regulators Give Passing Grade to ‘Living Wills' for Regional Banks; Most of the banks have shown feasible plans for taxpayer-free bailouts in the event of bankruptcy

Ryan Tracy | Friday, March 24, 2017

The Wall Street Journal

WASHINGTON—U.S. regulators gave 15 regional banks a passing grade on their "living will" plans for bankruptcy, a victory win for those firms that demonstrates how their regulatory environment is significantly less stressful than for the largest U.S. banks.

The verdicts from the Federal Reserve and Federal Deposit Insurance Corp. mean regional banks—including U.S. Bancorp, PNC Financial Services Group Inc. and Capital One Financial Corp.—have for the moment satisfied regulators that they have feasible plans for going through bankruptcy without needing a taxpayer bailout.

The plans, known as "living wills," are required under the 2010 Dodd-Frank financial law. The exercise is significant for banks because if regulators don't approve of them, sanctions such as higher capital requirements or forced breakups can be imposed. This is the first time regulators have issued a judgment about regional banks' plans. The firms will have to continue submitting updated plans in the future.

The one exception Friday was Northern Trust Corp. Regulators said they concluded that firm has "a number of shortcomings" in its living will, related to the funding and internal services available to keep the firm operating during a bankruptcy. They required the firm to address the perceived shortcomings by the end of this year.

A Northern Trust spokesman said the bank "maintains a strong financial position" and has been making improvements since it originally submitted its living will to regulators. "We look forward to working with the Federal Deposit

Insurance Corporation and the Federal Reserve Board and remain dedicated to advancing our resolution planning efforts," the spokesman said in a written statement.

The positive verdict for the regional banks stands in contrast to the treatment regulators have given eight of the largest U.S. banks, including industry titans such as J.P. Morgan Chase & Co. and Bank of America Corp. Those firms are much larger and more complex than regional banks and have had a harder time convincing regulators that they could fail without taxpayer help.

In April 2016, the Fed and FDIC concluded all eight of those firms had shortcomings in their plans, and saw problems so severe in five of the firms that they said the plans didn't meet the Dodd-Frank standard.

In December 2016, regulators said most of those firms had addressed their concerns. They also said Wells Fargo & Co. hadn't, and restricted some of the firm's business activities. Wells Fargo was given until March to remedy regulators' concerns. All eight of the big banks must file new living wills this summer.

Also on Friday, regulators gave four large foreign-owned banks guidance about how to improve their "living wills," but didn't render a verdict on the plans.

Those firms will have until July 2018 to conform plans to the guidance. The foreign-owned firms are Barclays PLC, Credit Suisse, Deutsche Bank AG and UBS Group AG.

Write to Ryan Tracy at

This article was licensed through Dow Jones Direct.


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