The Federal Deposit Insurance Corporation and the Federal Reserve Board have released firm-specific report cards on the 2015 resolution plans of eight systemically important, domestic banks. The determinations were made public on Wednesday, one day after a report by the Government Accountability Office called for greater transparency in how their assessments of "living wills" are conducted.

The two agencies jointly determined that the 2015 resolution plans of Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street, and Wells Fargo “were not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code [or] the statutory standard established in the Dodd-Frank Act.”

If any of the five firms receiving a joint notice of deficiencies does not adequately remediate their identified deficiencies by Oct. 1, regulators may impose additional prudential requirements, including more stringent capital, leverage, or liquidity requirements; or restrictions on growth, activities, or operations of the firm, or its subsidiaries. If, within a two-year period, a firm has failed to adequately remediate deficiencies, the agencies, in consultation with the Financial Stability Oversight Council, may require that it to divest assets or operations to facilitate an orderly resolution.

For Goldman Sachs and Morgan Stanley, the agencies identified shortcomings in their 2015 plans that must be addressed, but did not make joint determinations regarding the plans. Although both agencies identified shortcomings in the Citigroup resolution plan, they did not “believe the shortcomings rose to the level of the statutory standard required for a joint determination of non-credibility.”

The agencies are continuing to assess the plans for the four foreign banking organizations that filed resolution plans on July 1, 2015—Barclays PLC, Credit Suisse Group, Deutsche Bank AG, and UBS.

The Dodd-Frank Act gave the FDIC and the Federal Reserve Board the authority to review resolution plans, often called living wills, submitted by systemically important financial institutions to describe their plans for a post-bankruptcy resolution. In those plans, firms include a description of their methodology for estimating likely capital and liquidity needs, a projection of loss absorbing capacity, the liquidity available to each material entity at the point of resolution, and a description of how they would address any shortfall between the two.

Other expectations:

Demonstrating operational capabilities and resolution preparedness

Ensuring the continuity of shared services needed to support critical operations and core business lines throughout the resolution process

Developing a holding company structure that supports resolvability

Having an adequate governance structure with triggers capable of identifying the onset and escalation of financial stress events with sufficient time to prepare for resolution

Developing a clear set of actions to be taken to maintain payment, clearing, and settlement activities

Amending financial contracts to provide for a stay of certain early termination rights of external counterparties triggered by insolvency proceedings

In response to the latest assessments, the Financial Services Roundtable, a trade organization for financial services companies, called upon regulators to increase transparency. “The process could be significantly improved if regulators would make their expectations more clear up front since a more transparent process would serve everyone's interest,” said Tim Pawlenty, its CEO. His concerns echo the findings of a report by the Government Accountability Office that was released one day before the latest round of bank determinations.

“The regulators have made progress assessing resolution plans, but have provided limited disclosures about their reviews,” the GAO wrote. “Following their 2012, 2013, and 2014 plan reviews, the regulators clarified and expanded their expectations for the plans—jointly providing companies with guidance or feedback. However, they have not disclosed their frameworks for determining whether a plan is not credible. Without greater disclosure, companies lack information they could use to assess and enhance their plans…A lack of information on how the regulators assess plans and allow some companies to file reduced plans could undermine public and market confidence in resolution plans.”

The GAO also noted that the resolution plan rule requires companies to annually submit plans approved by their board of directors. “However, the annual filing cycle may not be feasible,” it wrote. “Regulators took nine months, on average, to complete their reviews…The regulators attributed their long review time in part to the plans' complexity, and one regulator said that companies ideally should have six months to incorporate feedback [versus the current three-month-deadline]. Absent a longer filing cycle, companies may not have sufficient time to revise their plans to incorporate regulatory feedback intended to enhance their resolvability.”

The Fed and FDIC also released the feedback letters issued to each firm, detailing the deficiencies and shortcomings of each firm's plan, as well as the specific remediation required of each firm. They also issued new guidance for the July 2017 submissions.

Abbreviated highlights from the feedback letters sent to banks:

Bank of America Corporation

It must provide an enhanced model and process for estimating the minimum operating liquidity needed to fund material entities in resolution to ensure they could continue operating consistent with regulatory requirements, market expectations, and the bank’s post-failure strategy.

Bank of New York Mellon

It must identify all critical services; maintain a mapping of how/where these services support its core business lines and critical operations; and incorporate this mapping into its legal entity rationalization criteria and implementation efforts.

JPMorgan Chase

It must provide an enhanced model and process for estimating the minimum liquidity needed to fund material entities in resolution.

The 2016 submission should also include business-line-specific analysis of obstacles to divestiture and identify potential buyers; and estimate the financial resources required to support an orderly active wind-down of the derivatives portfolio in the event that investment-grade ratings for the trading entities fail to be maintained or reestablished post-bankruptcy filing and a passive wind-down strategy is sub-optimal.

State Street Corporation

It must provide an enhanced model and process for estimating the minimum liquidity needed to fund material entities in resolution.

Wells Fargo Corporation

It must identify all critical services necessary to support its material entities and regional segments identified for disposition; a mapping of how/where these services support the firm’s core business lines, critical operations, and regional units that the firm plans to dispose of as part of its resolution strategy; and incorporation of such mapping into its legal entity rationalization criteria and implementation efforts.