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Regulators Reject ‘Living Wills’ of Five Big U.S. Banks

Federal Reserve building in Washington, D.C.

WASHINGTON—Regulators ordered five big U.S. banks to make significant revisions to their so-called living wills by Oct. 1 or face potential regulatory sanctions, a stern warning that will fuel criticism the firms are “too big to fail.”

J.P. Morgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Bank of New York Mellon Corp., and State Street Corp. were told by the Federal Reserve and the Federal Deposit Insurance Corp. that the regulators felt their plans for a possible bankruptcy don’t meet the legal standard laid out in the 2010 Dodd-Frank law, which requires that firms have credible plans to go through bankruptcy at no cost to taxpayers

They said those firms had until October to present plans regulators find acceptable, or the agencies or regulators could impose higher capital requirements, restrictions on growth or activities, or other sanctions.

Bank stocks, however, rallied in recent trading, led by J.P. Morgan, which reported smaller-than-expected declines in earnings and revenue for the first quarter despite difficult trading conditions.

The regulators split in their assessments of Goldman Sachs Group Inc. and Morgan Stanley. The FDIC said that Goldman Sachs’s plan didn’t meet the legal standard, while the Fed didn’t give that negative assessment.

The two regulators took the opposite stance on Morgan Stanley. The Fed “identified a deficiency” in Morgan Stanley’s plan that it said didn’t meet the legal standard, but the FDIC didn’t go that far, the agencies said in a news release.

Citigroup Inc. was the only firm whose plan wasn’t rejected by either agency, though the Fed and FDIC said the firm’s plan had “shortcomings that the firm must address” by July 2017.

The living wills had been submitted by the eight U.S. banks that had been deemed “systemically important financial...


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