US regulators sign off on large bank 'living wills'

• Living wills are required plans detailing how large banks could be safely unwound in bankruptcy without threatening financial stability
• Four major banks (Bank of America, Goldman Sachs, JPMorgan Chase, and Citigroup) successfully remedied earlier concerns about their derivatives portfolio resolution strategies
• The approval covers 8 of the nation's largest domestic banks and 56 foreign banking organizations operating in the U.S.

Summary

Regulatory Approval for Bank Resolution Plans

U.S. banking regulators—the Federal Reserve and Federal Deposit Insurance Corporation (FDIC)—announced Friday, May 22, that they have approved the "living wills" of the nation's 8 largest banks and 56 foreign banking organizations. These plans detail how institutions could be safely unwound in bankruptcy without triggering systemic risk.

Key Developments:

The regulators found no shortcomings in the current submissions, marking significant progress from previous reviews. Notably, deficiencies identified in 2024 plans from four major institutions—Bank of America, Goldman Sachs, JPMorgan Chase, and Citigroup—have been sufficiently addressed. Those banks had previously failed to adequately demonstrate how they could safely unwind their derivatives portfolios during a crisis.

Market Implications:

The approval represents a regulatory milestone for major U.S. banks, indicating improved preparedness for potential financial distress scenarios. The clean bill of health for all eight largest banks and numerous foreign banking organizations suggests enhanced systemic stability in the financial sector.

Living wills, formally known as resolution plans, have been required since the 2010 Dodd-Frank Act to prevent taxpayer-funded bailouts similar to those during the 2008 financial crisis. The successful resolution of derivatives portfolio concerns—particularly complex for the four Wall Street giants—demonstrates these institutions have strengthened their risk management frameworks.

Bottom Line:

This regulatory clearance removes potential compliance risks and capital requirement penalties for the affected institutions, representing positive news for the banking sector's regulatory standing and operational flexibility.