The banks are too big to manage, even if they died.
Eleven of the biggest banks and asset managers, from Bank of America and Goldman Sachs to State Street and Morgan Stanley, are so large and complex that breaking them up during a financial crisis wouldn’t be quick or orderly — and could further weaken markets, the Federal Reserve and the Federal Deposit Insurance Corp. said in a statement on Tuesday.
The regulators targeted systemically important institutions with $50 billion-plus in assets that are required to create “living wills.”
Each of those wills “is deficient and fails to convincingly demonstrate how, in failure, any one of these firms could overcome obstacles to entering bankruptcy without precipitating a financial crisis,” said Thomas Hoenig, FDIC vice chairman.
The wills made “unrealistic” assumptions about how investors would behave during a market crash, as well as failed to identify structural changes at the bank, the agencies said.
These wills are supposed to provide the government an orderly way to break up the company should it collapse, like Lehman Brothers did in 2007, precipitating a market crash.
The other banks are Barclays, Bank of New York Mellon, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan Chase and UBS. The 11 firms have until July 1 to provide simplified plans.