Big Banks Receive Failing Grade For “Living Wills”

The Federal Reserve and Federal Deposit Insurance Corp. told 11 of the largest U.S. and foreign banks  that their so-called “living wills” were unsatisfactory. The agencies ordered the banks to simplify their legal structures and revise some practices to make sure they would not damage the financial system if they failed.  These 11 banks, all with assets greater than $250 billion, included Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street, and the U.S. units of Barclays, Credit Suisse Group, Deutsche Bank, and UBS.  Each of these firms received letters detailing deficiencies in their “living wills”.  Berkshire Hathaway currently has investments in three of these banks, Goldman Sachs, Bank of America, and Bank of New York Mellon.  It is worth noting, however, that Berkshire’s largest investment, Wells Fargo, is not on this list.

I am quoted in a Bloomberg article on this topic:

David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, said it would be best for the banks to make these changes voluntarily before they are forced to by the regulators.

“This is potentially of major consequence to the banks if they fail to respond to these concerns,” Kass said. “Each bank receiving this letter needs to address each deficiency and do it in a way that is convincing.”

The entire article is available at:

http://www.bloomberg.com/news/2014-08-05/biggest-u-s-banks-told-to-simplify-their-living-wills-.html