Big Banks Share More Details About 'Living Wills'

WASHINGTON — Twelve of the largest financial firms sought to beef up abridged versions of their insolvency plans after earlier drafts were criticized as subpar.

Big banks were under pressure to strengthen their so-called living wills, which are meant to avoid the need for federal bailouts. Regulators' cries for improvements applied to the thousands of pages read only by them as well as the condensed summaries shown to the public on Monday.

Decisions by the Federal Deposit Insurance Corp. and Federal Reserve Board on whether the latest plans made the grade are not expected for several months. But the versions posted on the agencies' websites were noticeably longer and more detailed.

For example, public plans now include information about how subsidiaries would be resolved in addition to the parent company's unwinding, how legal entities are interconnected, what the stripped-down banks would look like and banks' current efforts to simplify themselves.

"To further improve public understanding of the resolution plans, in the past year the agencies provided guidance to the firms requiring that the public plans include more detailed information in a number of areas," the Fed and FDIC said in a joint press release. "These areas include a discussion of the strategy for resolving each material entity in a manner that mitigates systemic risk, a high-level description of what the firm would look like following resolution, and a description of the steps that each firm is taking to improve its ability to be resolved in an orderly manner in bankruptcy."

Under the Dodd-Frank Act, a total of about 130 firms operating in the U.S. with at least $50 billion in global assets must submit a plan annually, showing how they would be unwound in bankruptcy. The intent is to compel banks to simplify in a manner that a failure would not endanger the economy. Companies with continually subpar plans could be forced to raise capital or take other corrective measures such as asset divestitures.

While regulators' decisions on the 2015 drafts are not expected until 2016, the versions released Monday indicate banks at least tried to be responsive to past criticism that public disclosures lacked substance. In addition to plans being longer, companies went beyond just listing various legal entities by including separate narratives on what would happen to entities in a failure. Some units would be sold off or wound down as clients sought services elsewhere. Others would remain under a restructured parent, but with a smaller overall footprint.

For example, Citigroup's public summary — just 31 pages last year — jumped to 102 pages in the most recent version. Each description of a separate material entity includes a "resolution strategy" for that entity. The plan envisioned Citi's banking operations — following a stabilization period — being "segmented and divested through a series of M&A and [initial public offering] transactions that maximize their value for the Citigroup Parent bankruptcy estate."

Bank of America's public version increased to 63 pages, from 36 last year. In the 2014 plan, B of A spent just three pages on summarizing its resolution strategy, but that section was extended to 13 pages in the most recent version. At the conclusion of the bank's resolution, B of A said, the "surviving institution would serve fewer customers and offer fewer products, and the overall size of the organization would be smaller."

JPMorgan Chase's public plan increased from 35 to 52 pages. The public version now includes a 12-page chapter on "Material Legal Entity Interconnectivity." While its main bank subsidiary would remain operating during a bankruptcy, the company said, "the assets of JPMorgan Chase Bank, N.A., and its material legal entity branches are estimated to be reduced in a substantially weakened economic environment by approximately one-third post-resolution."

The bank added that customers of JPMorgan Chase's U.S. broker-dealer subsidiaries "would have substantially transferred to third-party providers."

Despite release of the public portions, a lot more is riding on the banks' overall plans, including the nonpublic versions. Last year the regulators stopped short of formally declaring plans "not credible," which would have set in motion corrective action under Dodd-Frank, but warned they would use that authority if improvements were not made.

Banks have been divided into three filing classes, with bigger and more complex banks following a more expedited schedule. Drafts of others firms are expected in December.

The batch of plans released Monday included that of Wells Fargo, which has received a better grade from the agencies on its earlier plans.

Other banks filing public plans included State Street, Bank of New York Mellon, Goldman Sachs, Morgan Stanley, Credit Suisse, Barclays, UBS, and Deutsche Bank.