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In living wills, shortcomings all around


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In living wills, shortcomings all around

The Federal Reserve and the FDIC determined that the 2015resolution plans of Bank of AmericaCorp., Bank of NewYork Mellon Corp., JPMorgan Chase & Co., and were either notcredible or would not facilitate an orderly resolution under the U.S.Bankruptcy Code.

Meanwhile, neither agency objected to 's plan, althoughshortcomings were still identified. These included the lack of specifictriggers for escalating information to the company's management and boardregarding potential subsidiary funding and recapitalizations, and action thatwould be required upon reaching a trigger event.

Among shortcomings identified for Bank of America was thelack of an appropriate model and process for estimating and maintainingsufficient liquidity. The plan's funding profile relied on an ability to shiftsubstantial amounts around the company as needed. The regulators said BofAshould be able to measure the stand-alone liquidity position of each materialentity, including non-U.S. branches.

Shortcomings identified for BNY Mellon included the size andlack of market substitutability of its government securities clearing andtri-party repo operations. Regulators said it is likely that the company'sbridge bank would need to be extended beyond the six months to one yearanticipated. BNY Mellon's plan also assumed that all deposits and certaintrading liabilities would be transferred to the bridge bank, while certaingeneral unsecured claims would remain in the receivership. The regulators saidthe strategy should explain why liabilities would be transferred to the bridgebank, as the transfer could cause disparate claim treatment within a creditorclass.

The regulators said JPMorgan's shortcomings included areliance on a certain amount of parent liquidity support being injected intovarious material entities, including its U.S. broker/dealers, immediatelybefore a bankruptcy filing. But this would include reliance on foreign entitiesthat may be subject to defensive ring-fencing during a time of financialstress. In addition, the plan did not analyze how trading portfolios could bemanaged down in an orderly manner if counterparties ceased transacting withJPMorgan Securities LLC, JPMorgan Clearing Corp. and JPMS PLC in the event, forexample, of a ratings downgrade or withdrawal.

Among shortcomings identified for Wells Fargo were materialerrors requiring a resubmission of financial information. The regulators pointedout that the errors called into question the executability of the plan, as thelack of planning governance in itself raised concerns regarding quality controland senior management oversight at the company. And while the expanded optionof separating Wells Fargo BankNA into regional units for disposition was a positive development,the regulators said the company did not demonstrate that it would beachievable. The regulators further said legal entity rationalization criteriashould not only provide for the rationalization of current entities, but forfuture ones as well, particularly given the ongoing and anticipated expansionin Wells Fargo's activities and geographic reach.

Regarding State Street, the regulators said the firm had yetto complete "the fundamental first step" of identifying its sharedservices and that its plan provided a significant amount of discretion indesigning the firm's structure, without taking into consideration how increasedcomplexity would affect resolvability.

Each company has until Oct. 1 to remediate its deficiencies.

The Fed and the FDIC also jointly identified weaknesses inGoldman Sachs GroupInc. and MorganStanley, but did not make joint determinations regarding the plansand their deficiencies. Goldman's plan was deemed not credible or able tofacilitate an orderly resolution by the FDIC, while Morgan Stanley's receivedthe same evaluation from the Fed. In particular, Goldman's proposedrecapitalization was said to place the firm's governance bodies under severetime constraints, leading to the potential risk of insufficient processing ofrelevant information. The company also assumed that interactions withregulators would support recapitalization in all relevant jurisdictions andthat regulators would not take actions that could impede the execution of therecapitalization strategy. In Morgan Stanley's case, it failed to address thering-fencing vulnerability and relied on resources that may not be easilywithdrawn in a severe stress situation.

The assessments of Barclays Plc's, Credit Suisse Group AG's, 's and 's plans are ongoing.

The next deadline for full plan submissions is on July 1,2017.