The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) announced a joint decision on the plans of the nation’s largest banks for dealing with future crises this week.
Hearkening back to the Great Recession that saw bailouts, business failures and massive economic hits across the country, the Federal Reserve and the FDIC determined progress among most banking institutions’ efforts for dealing with such problems in the future, with one notable exception. Specifically, those plans are for handling their dissolution without involving a taxpayer bailout.
Wells Fargo & Co. fell short to federal regulators, who determined it had not done enough to ensure it could continue operation without a taxpayer bailout in the event of a bankruptcy.
“Today’s joint determination is a reminder that Wall Street reform is working to rein in the megabanks that crashed our economy and got bailed out by taxpayers,” U.S. Sen. Sherrod Brown (D-OH), ranking member of the U.S. Senate Committee on Banking, Housing and Urban Affairs, said following the announcement. “Even one too big to fail bank is too many, and we need watchdogs that will continue to impose tough rules and strong penalties to make banks simpler and safer, not the opposite.”
These ongoing efforts from Wall Street are a consequence of the 2010 Wall Street reform law which required the nation’s largest banks to have “living wills” for dealing with bankruptcy without involving taxpayers.
Therefore, it was big news in April when the Fed and FDIC gave failing grades to five of the largest U.S. banks, giving them until Oct. 1 to make improvements to their plans or face consequences. While most have since adjusted course, by failing to meet the standard once again, Wells Fargo & Co could now be subject to increased oversight, along with higher capital requirements or divestment of its assets.