U.S. banking regulators say that the “living wills” of three major foreign banks are not up to snuff.
The U.S. Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC) announced that their reviews of the resolution plans of three large, foreign banks — BNP Paribas, HSBC Holdings plc, and The Royal Bank of Scotland Group plc — all have weaknesses that will have to be addressed in their 2015 plans.
The regulators say that the shortcomings varied across the firms, but that they did share common features, including unrealistic, or inadequately supported, assumptions about the likely behaviour of customers, counterparties, investors, central clearing facilities, and regulators. Their plans also suffered from an inadequate analysis of the interconnections within the firms, the regulators found.
The FDIC board concluded that the banks’ current plans “are not credible and do not facilitate an orderly resolution”; and, the Fed determined that they “must take immediate action” to improve their resolvability, and that those improvements should be built into their 2015 plans.
The banks must submit plans by Dec. 31, that demonstrate “significant progress to address all the shortcomings”, the regulators found; and, that they are taking action to improve their resolvability under U.S. bankruptcy law.
U.S. regulatory reforms in the wake of the financial crisis require certain banks with total consolidated assets of at least US$50 billion to periodically submit resolution plans to the Fed and the FDIC, which set out the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company.