July 3, 2012

Banks Defy American Taxpayers With Empty Wills

Public Citizen Finds Bank Failure Plans, or ‘Living Wills,’ Void of Necessary Detail

WASHINGTON, D.C. – Federal banking regulators today released public portions of the so-called living wills of the largest banks, or the plans each bank created for winding down their sprawling affiliates in case of failure so as to prevent another taxpayer bailout. As provided under the Dodd-Frank Wall Street Reform Act, the “resolution” plans cover the nine largest banks, which have more than $250 billion in assets. 

At this point, regulators have reviewed neither the public plans nor the larger more detailed plans, which will not be released to the public. Yet they may still reject some as inadequate.

“After sucking trillions of dollars from taxpayers in bailouts and subsidies as well as wrecking the world economy, America’s largest banks should offer more in their living wills than excerpts from their shareholder reports and self-promoting bromides about their safety,” said Bartlett Naylor, financial policy advocate for Public Citizen’s Congress Watch division. “If the shallow, detail-thin public plans are any indication as to what regulators will find in the plans submitted to them, Washington should return them to the banks marked ‘F.’ ”

“Living wills must be concrete, detailed plans that list vulnerabilities to be repaired now as well as clear direction for turning out the lights in the event of failure,” Naylor said. “JPMorgan Chase’s multibillion-dollar London loss, which escaped the understanding of a CEO considered the best banker in the nation, underscores the need for making American financial institutions small and simple enough to manage, supervise and, if necessary, shutter.”

Living wills are critical to preventing another taxpayer bailout. The nation’s banks create hundreds of affiliates to escape taxes and regulation, which leads to a nightmare for regulators attempting to sell off assets and negotiate claims when the firm fails, Naylor said. The living wills are intended to create a roadmap for structural changes at each bank so that simplicity of resolution trumps bank evasion of regulation and taxes.

Deficient living wills also can empower regulators to order higher capital and divestiture.

“It’s obvious to shareholders of the major banks, where the parts are worth more than the current market value, that breaking up is the correct course,” Naylor said. “Regulators should use this standard to measure the credibility of a living will. We urge them to reject inadequate plans.”