Democratic lawmakers are pushing the Federal Reserve to implement Dodd-Frank rules that were supposed to have already eroded the “too big to fail” status of the nation’s largest financial institutions.
Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.) asked Fed Chair Janet Yellen on Thursday for updates on the Fed’s final assessment of resolution plans that the firms were ordered to draft by the landmark 2010 law.
Yellen told Brown that the ruling would come “in the not too distant future,” but declined to specify when. Warren reminded the Fed chair that the banks’ failure to submit adequate proposals could result in regulators “breaking up the banks, by forcing them to sell off assets.”
“This is one of the ways we determine if ‘Too Big To Fail’ still actually exists,” Brown had said.
The Fed and the Federal Deposit Insurance Corporation (FDIC) finalized the so-called “living will” rule in 2011. It required bank holding companies with over $50 billion in assets to submit resolution plans in the event of bankruptcy by the end of 2013. Those documents were supposed to outline how the financial institutions would be liquidated with minimal disruption to taxpayers and entire markets.
In August 2014, the two regulatory agencies ruled that the living wills submitted by 11 financial institutions were insufficient. Only the plan of one bank—Wells Fargo—was accepted by the Fed and FDIC, and it was only approved in November 2014 on the condition that it would be revised.
New versions of the proposals were submitted by financial behemoths last summer. Banks that are currently being scrutinized include Bank of America, Citigroup, Goldman Sachs, and JP Morgan.
Warren noted on Thursday that in 2014, regulators could have made a ruling that would have concluded the matter, but said that the Fed, unlike the FDIC, was not ready to give the banks a failing grade.
“The Fed’s refusal to call the plans ‘not credible’ meant the agencies couldn’t use statutory rules to push these risky banks in the right direction,” she said.
Yellen responded by noting that the Fed had “expected to go through a few rounds of submission to clarify” what it wants in living wills.
“It’s a completely new process and we felt the banks need to understand what expectations were in terms of what we wanted to see,” she said. “We had felt that we had not given sufficiently clear guidance to make the decision at that time.”
As she noted last July, Yellen said Thursday that the Fed would be “prepared to make findings that a living will is deficient.”
