A group of 16 regional banks received passing grades from regulators Friday on their “living wills” that spell out how they would fail without causing panic, providing a boost for those firms amid their push to win regulatory relief.
The Federal Reserve and Federal Deposit Insurance Corporation announced that the living wills would work and that the banks could go through bankruptcy, or at least there are no major reasons to think otherwise.
The goal of the living wills is for banks to explain ahead of time how they would go through the bankruptcy process, rather than force a bailout or prompt a crisis as creditors panicked about which of them would get their money back.
While the regional banks mostly sailed through Friday, megabanks have not found the process as easy. In December, for example, the Fed and FDIC rejected a revised living will submitted by Wells Fargo.
Rejection of a living will is potentially a big deal, with escalating consequences the longer the bank fails to fix its bankruptcy plan, up to forcing the bank to be broken up after years of noncompliance.
While the megabanks have stumbled in some of the tests, prompting some liberal lawmakers to claim that they are still too-big-to-fail, the success of the regional banks means that the process will be eased, or “tailored” to their size,” for the next round of submissions due in December, the Fed said.
One bank, Northern Trust, did have unidentified “shortcomings,” according to the Fed, which it is supposed to fix in its December submission.
Regional banks fall well short of the size and scope of Wall Street megabanks but have bigger books than most community banks.
The other 15 banks were American Express Company, Ally Financial Inc., BB&T Corporation, Capital One Financial Corporation, Comerica Incorporated, Discover Financial Services, Fifth Third Bancorp, Huntington Bancshares Incorporated, KeyCorp, M&T Bank Corporation, Northern Trust Corporation, Regions Financial Corporation, SunTrust Banks, Inc., The PNC Financial Services Group, Inc., U.S. Bancorp, and Zions Bancorporation.
