Letter to The Honorable Janet Yellen, Chair, Board of Governors of the Federal Reserve System, and The Honorable Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation (FDIC) - Consider All Statutory Tools if Banks' Living Wills Are Found Not Credible

Letter

Dear Chair Yellen and Chairman Gruenberg,

As we learned from the recent financial crisis, the failure of a handful of financial institutions can threaten the safety and soundness of the global economy and the financial security of working-class families. It is essential that you keep those lessons in mind - and be willing to use the statutory tools Congress has provided - as you continue reviewing the resolution plans, or living wills, of systemically important financial institutions.

The financial system is unquestionably safer today because of important provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the law, Congress provided clear guidance to regulators and strengthened the tools at their disposal to ensure adequate oversight. Central to that effort are requirements that systemically important financial institutions demonstrate their plans for a rapid and orderly resolution through bankruptcy in the event of material financial duress or failure.

Earlier this year, the Federal Reserve and the FDIC rejected five such living wills. Those five financial institutions will have until October 1st of this year to rewrite and resubmit their plans. We appreciate the effort and progress made by the banks thus far, but it is highly concerning that after a multi-year review process, the living wills of five large banks reveal that the banks are still too vulnerable to weather a major economic storm without threatening the economy.

As you know, Section 165 of Dodd-Frank provides the Federal Reserve and the FDIC the authority to impose more stringent prudential requirements on, or even ultimately restructure, large financial institutions unable to craft credible resolution plans on their own.

It is up to the regulators to utilize their existing authority and remain vigilant to safeguard the financial system from ever again endangering working-class families and the broader economy. We encourage you to consider all your statutory tools in Section 165 should you determine that the resubmitted living wills of the largest financial institutions are not credible.

Source