Regulation in the banking sector following the 2008 financial crisis has been focused on the Dodd-Frank Act and its provisions for banks. One of the main concerns addressed within the provisions of the Dodd-Frank Act is the risk that banks are too big to fail, meaning that they must have more adequate plans in place to wind down their operations in the case of a bankruptcy, and that these plans should be achieved without funds from the government to bail them out.

As of April 2016, the U.S. government’s banking regulators still did not feel that banks were prepared enough to protect themselves and the U.S. economy from the disastrous effects of a bankruptcy. This concern centers on the most recent living will submissions for the economy’s largest banks, which are now required by the 2010 Dodd-Frank Act.

Five of the nation’s largest banks are still considered to have inadequate plans in place for managing bankruptcy, as measured by the standards of the Federal Reserve and Federal Deposit Insurance Corporation (FDIC). The Fed and the FDIC have reported that JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp. (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC), State Street Corp. (NYSE: STT) and The Bank of New York Mellon Corp. (NYSE: BK) are still too big to fail under measures of the Dodd-Frank Act and specifically the United States Bankruptcy Code.

These measures are determined by the evaluation of the banks’ living will submissions, which are now required to be submitted annually to the Federal Reserve and FDIC. Both regulating bodies evaluate the living will submissions for a "pass" or "fail" grade. Following the implementation of the 2010 Dodd-Frank Act, banks with assets of $50 billion or more are required to submit detailed living will documentation that summarizes their plans for handling a bankruptcy. These plans must include detailed procedures for liquidating their assets. Plans must include how they will do this with minimal disruption to the United States economy and without funds from the United States government to bail them out. If plans do not pass, they can undergo a revision, which can follow with restrictions and sanctions if resubmitted plans are not adequate.

The living will plans of these five banks were denied by both the Federal Reserve and the FDIC, making them the top five banks posing the highest risk for the financial sector and the United States economy.

The liquidation plans of the big banks can take various forms, and due to the varying operations of each bank, the banks are each in different situations. The following cites the main issues reported from the top five too-big-to-fail banks’ most recent living will submissions:


JPMorgan’s main issues included lack of adequate plans for liquidation and transfer of foreign investments, as well as inadequate plans for liquidating its outstanding derivative contracts in a crisis scenario.

Bank of America

Regulators requested that Bank of America improve its overall liquidity models with better planning for various steps within its bankruptcy process. Also of concern was the bank’s ability to liquidate and close down its trading operations.

Wells Fargo

Regulators had issues with Wells Fargo’s governance and legal structure, specifically its quality control and accuracy of reporting.

State Street

Regulators were most concerned with State Street’s legal entity structure, which makes it difficult to appropriately assess adequate liquidity procedures comprehensively for the bank.

Bank of New York Mellon

Bank of New York Mellon’s plans to create a “bridge bank” in the case of a bankruptcy scenario did not pass the regulators' review and requires further revisions.

Overall, the Federal Reserve and FDIC reviewed living will submissions for eight banks as of April 2016. Of the eight banks, only one, Citigroup Inc. (NYSE: C), passed inspections from both regulators. Submissions from Morgan Stanley (NYSE: MS) and Goldman Sachs Group Inc. (NYSE: GS) were adequate, yet only passed an inspection from one regulator. With the remaining five big banks still seriously posing risks to the banking sector and economy because of their too-big-to-fail status, it seems that the banking sector overall still has far to go in becoming fully compliant with the new required rulings of the 2010 Dodd-Frank Act’s living will submissions. This means that the United States economy and American taxpayers are still broadly at risk of inadequate banking operations within the financial sector.