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August 6, 2014

Wall Street’s Biggest Banks Purposefully Flunk ‘Living Will’ Test to Ensure Future Bailouts

Washington, D.C., August 6, 2014 – This week, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) found the resolution plans or “living wills” submitted by Wall Street’s eleven largest banks grossly deficient.  That should surprise no one.  Workable and effective resolution plans are a key part of the new financial reform law to ensure that the “too-big-to-fail” banks can either be restructured or dissolved through bankruptcy without any taxpayer-funded bailouts. That’s the last thing Wall Street wants.

Better Markets President and CEO Dennis Kelleher issued the following statement:

“The problem is that Wall Street’s biggest banks don’t want to have to go into bankruptcy if they fail.  They want U.S. taxpayers to bail them out like what happened in 2008-2009.  They want to keep their jobs, bonuses and reckless gambling like what happened in 2008-2009.  That’s very profitable for Wall Street:  All gain, no pain for them as they shift the pain and expense of their failure to the taxpayers.

“Who wouldn’t want that deal?  But, no one else in the U.S. gets that deal and Wall Street’s biggest banks shouldn’t get it either.  A fundamental principal, indeed, an essential feature of the free market and capitalism is failure and bankruptcy.  That’s why this handful of Wall Street’s too-big-to-fail banks are being required to have resolution plans, but it is also why they don’t want it and are not going to do it without a fight.

“That is why they all failed this key test: it’s like asking a bank robber for a road map to the next bank they are going to rob.  Here, it’s asking Wall Street to provide a plan that would make them suffer the consequences of their own recklessness, including losing their big bonuses, their jobs and reputations.  They don’t want to be accountable.  They don’t want bankruptcy to be an option for them.  They want to stay so big, complex, interconnected and dangerous that their failure threatens to crash the global economy and cause a Great Depression next time unless they are bailed out like last time.  A workable resolution plan might prevent that, which is presumably why all 11 banks submitted grossly deficient plans.

“Bravo to the federal regulators at the FDIC and the Fed for having the courage and conviction to flunk all 11 banks and calling them out on this, saying the plans make “unrealistic or inadequately supported” assumptions and failed “to make, or even identify, the kinds of changes in firm structures and practices that would be necessary to enhance the prospects for orderly resolution.”  Think about that: they brazenly didn’t even bother to “even identify” the key elements well known to them as financial merger, acquisition and disposition experts, as FDIC Director Tom Hoenig so compellingly detailed.”

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Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure thereby eliminating or minimizing the need for more taxpayer funded bailouts. To learn more, visit www.bettermarkets.com.

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