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American banks have finally got the hang of dying in their living wills. The Federal Reserve and the Federal Deposit Insurance Corporation cleared the resolution plans of the eight biggest lenders on Tuesday, though four, including Wells Fargo, need improvements. It’s a far cry from 2016 when five failed outright.
Last year, Wall Street was surprised by the regulatory slap. Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street and Wells Fargo had to resubmit their plans, with the risk of additional penalties such as higher capital requirements or forced divestitures. Wells Fargo was rejected twice.
This year, the lender, based in San Francisco, was among four banks that were found to have shortcomings, along with Bank of America, Goldman Sachs and Morgan Stanley. They passed, but need to improve by next year. For example, regulators said Wells Fargo did not provide enough documents and analysis to show how it would divest businesses if needed.
The results reflect real improvements given the tough stance the F.D.I.C. has taken in the past. The agency, which signed off on the living wills, counts Thomas M. Hoenig, a Wall Street critic, among its leadership, which has not yet changed since the administration of President Barack Obama.
The Fed and F.D.I.C. are considering changing the cycle of the exercise to every two years, instead of every year. Not only are banks safer, but they finally understand what regulators want.
