US bank regulators have determined that five major banks including JP Morgan Chase and Wells Fargo would not be able to withstand a financial collapse without a taxpayer bailout.
The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve have given these banks, which also include Bank of America, Bank of New York Mellon, and State Street, a deadline of 1 October 2016 to amend their bankruptcy plans.
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The banks could face more strict prudential requirements in case of failing to do so, the regulators warned.
"The prudential requirements may include more stringent capital, leverage, or liquidity requirements, as well as restrictions on growth, activities, or operations of the firm, or its subsidiaries. If, following a two-year period beginning on the date of the imposition of such requirements, a firm still has failed to adequately remediate any deficiencies, the agencies, in consultation with the FSOC, may jointly require the firm to divest certain assets or operations to facilitate an orderly resolution of the firm in bankruptcy," FDIC said.
The plans had been submitted by eight major systematically important banks in the US, including Goldman Sachs, Morgan Stanley, and Citigroup in addition to the five aforesaid banks.
Citigroup was the only bank among the eight whose plans were not rejected as being not credible by both the regulators. However, they identified some loopholes and called for their rectification.
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By GlobalDataAll the eight lenders are required to submit their full bankruptcy plans on 1 July 2017.
"The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systemically important financial institutions demonstrate a clear path to an orderly failure under bankruptcy at no cost to taxpayers," FDIC chairman Martin Gruenberg said.
