Fed and FDIC: five of the largest banks still too big to fail

"[F]ive of the nation's eight largest banks--including JPMorgan Chase and Bank of America--did not have "credible" plans for how they would wind themselves down in a crisis without sowing panic.

That suggests that if there were another crisis today, the government would need to prop up the largest banks if it wanted to avoid financial chaos.

...The regulators were responding to the so-called living wills that banks must submit to regulators on a regular basis to explain how the banks plan to enter bankruptcy in an orderly fashion in case of crisis...

...In recent weeks, [former congressman Barney] Frank has criticized the financial overhaul proposals by Mr. Sanders. Mr. Frank contends that some of the plans to break up the banks are simplistic because they take a one-size-fits-all approach. In contrast, he said, measures like the living wills allow regulators to press for banks to shrink based on specific conditions at those firms.

The five banks that received rejections have until Oct. 1 to fix their plans.

After those adjustments, if the Fed and the F.D.I.C. are still dissatisfied with the living wills, they may impose restrictions on the banks' activities or require the banks to raise their capital levels, which in practice means using less borrowed money to finance their business.

And if, after two years, the regulators still find the plans deficient, they may require the banks to sell assets and businesses, with the aim of making them less complex and simpler to unwind in a bankruptcy."

http://www.nytimes.com/2016/04/14/business/dealbook/living-wills-of-5-banks-fail-to-pass-muster.html?_r=0

Steve Eisman: breaking up the banks not the solution

"It’s no longer accurate to say that the large banks pose a systemic danger to the American economy. Some argue that they should be broken up solely because they are too politically powerful. Perhaps so, although that power hasn’t managed to prevent regulators from dismantling bank leverage and risk. Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further. 

Now that we have a new bank regulatory regime that seems to be working, we should not complicate it with breakup proposals whose ultimate implications are unclear at best. But it is absolutely crucial that the new regulations not be rolled back. The Federal Reserve should continue its annual stress tests of the large banks. Calls for restricting the power of the consumer protection board should be rejected outright.

The central economic problem of our time is income inequality, especially the lack of personal income growth for most Americans, which was one of the underlying causes of the financial crisis. In lieu of rising incomes, credit was allowed to be democratized. Living standards were maintained only because increased credit supplemented deteriorating incomes. That helps explain, post-crisis, why United States growth is slow: Without easy credit, consumers cannot increase spending, because their incomes have fallen since 2007.

If we want a stronger economy, improving the distribution and growth of personal income should be our focus. Breaking up the big banks will not help, and might even hurt."

http://www.nytimes.com/2016/02/07/opinion/dont-break-up-the-banks-theyre-not-our-real-problem.html?_r=1