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15 Regional Banks Get Fed Nod on 'Living Wills,' NTRS Fails
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Last week, U.S. banking regulators, the Federal Reserve and the Federal Deposit Insurance Corp (“FDIC”), passed 15 regional banks on their "living wills" but found a fault in the plan of Northern Trust Corporation NTRS after completing the evaluation of the 2015 resolution plans. Both the regulatory agencies have found some shortcomings in Northern Trust’s plan which needs to be submitted, as revised, by Dec 2017.
The plan, better known as “living will,” lays out the strategy for a company’s fast resolution under bankruptcy in the event of failure of the company or severe financial stress. Under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the banks (with total consolidated assets of $50 billion or more) are required to submit living wills. The main objective behind the submission of living will is to avoid re-run of the 2008 financial crisis and reduce risks of further bailouts.
A systemic resolution, maximizing the sale value of a failed bank and minimizing creditor losses, would help in efficient handling of bank failures. Moreover, the FDIC will have the power to liquidate a bank if its collapse knocks down the country’s financial stability.
The other 15 regional banks which have gained passing grades, include American Express Company (AXP - Free Report) , Ally Financial Inc. ALLY, BB&T Corp. , Capital One Financial Corp. (COF - Free Report) , Comerica Inc. (CMA - Free Report) , Discover Financial Services (DFS - Free Report) , Fifth Third Bancorp (FITB - Free Report) , Huntington Bancshares Inc. HBAN, KeyCorp KEY, M&T Bank Corp. MTB, Regions Financial Corp. (RF - Free Report) , SunTrust Banks, Inc. STI, The PNC Financial Services Group, Inc. (PNC - Free Report) , U.S. Bancorp USB and Zions Bancorporation ZION.
For the 15 regional banks, which passed without shortcomings, the regulators have reduced expectations in their 2017 resolution plans related to the size and complexity of the banks. Thus, information to be submitted by these banks by Dec 31, 2017 will be minimized.
On the other hand, the U.S. regulators permitted one-year extension till Jul 2018 to four foreign banks to improve their resolution plans in order to comply with regulations as were directed in 2014 to operate their U.S. businesses under one corporate entity. These banks include Barclays Plc (BCS - Free Report) , Credit Suisse Group AG , Deutsche Bank AG (DB - Free Report) and UBS Group AG (UBS - Free Report) .
The Fed and Federal Deposit Insurance Corp guided these banks as "to reflect the significant restructuring that they have undertaken to form intermediate holding companies."
Conclusion
Hypothetically, it is easy to say that resolution plans should be made in a way such that they do not adversely affect the overall financial system. However, in practice, it is difficult to mitigate the harm, as banks depend considerably on mutual businesses.
Nevertheless, we believe ‘Living Wills’ will help the regulators to wind up banks, in case of failures, to some extent. Most importantly, the advance precautions will surely entail into lesser involvement of taxpayers’ money for bailing out troubled financial institutions.
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15 Regional Banks Get Fed Nod on 'Living Wills,' NTRS Fails
Last week, U.S. banking regulators, the Federal Reserve and the Federal Deposit Insurance Corp (“FDIC”), passed 15 regional banks on their "living wills" but found a fault in the plan of Northern Trust Corporation NTRS after completing the evaluation of the 2015 resolution plans. Both the regulatory agencies have found some shortcomings in Northern Trust’s plan which needs to be submitted, as revised, by Dec 2017.
The plan, better known as “living will,” lays out the strategy for a company’s fast resolution under bankruptcy in the event of failure of the company or severe financial stress. Under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the banks (with total consolidated assets of $50 billion or more) are required to submit living wills. The main objective behind the submission of living will is to avoid re-run of the 2008 financial crisis and reduce risks of further bailouts.
A systemic resolution, maximizing the sale value of a failed bank and minimizing creditor losses, would help in efficient handling of bank failures. Moreover, the FDIC will have the power to liquidate a bank if its collapse knocks down the country’s financial stability.
The other 15 regional banks which have gained passing grades, include American Express Company (AXP - Free Report) , Ally Financial Inc. ALLY, BB&T Corp. , Capital One Financial Corp. (COF - Free Report) , Comerica Inc. (CMA - Free Report) , Discover Financial Services (DFS - Free Report) , Fifth Third Bancorp (FITB - Free Report) , Huntington Bancshares Inc. HBAN, KeyCorp KEY, M&T Bank Corp. MTB, Regions Financial Corp. (RF - Free Report) , SunTrust Banks, Inc. STI, The PNC Financial Services Group, Inc. (PNC - Free Report) , U.S. Bancorp USB and Zions Bancorporation ZION.
Among these banks, Comerica, Regions Financial and SunTrust Banks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For the 15 regional banks, which passed without shortcomings, the regulators have reduced expectations in their 2017 resolution plans related to the size and complexity of the banks. Thus, information to be submitted by these banks by Dec 31, 2017 will be minimized.
On the other hand, the U.S. regulators permitted one-year extension till Jul 2018 to four foreign banks to improve their resolution plans in order to comply with regulations as were directed in 2014 to operate their U.S. businesses under one corporate entity. These banks include Barclays Plc (BCS - Free Report) , Credit Suisse Group AG , Deutsche Bank AG (DB - Free Report) and UBS Group AG (UBS - Free Report) .
The Fed and Federal Deposit Insurance Corp guided these banks as "to reflect the significant restructuring that they have undertaken to form intermediate holding companies."
Conclusion
Hypothetically, it is easy to say that resolution plans should be made in a way such that they do not adversely affect the overall financial system. However, in practice, it is difficult to mitigate the harm, as banks depend considerably on mutual businesses.
Nevertheless, we believe ‘Living Wills’ will help the regulators to wind up banks, in case of failures, to some extent. Most importantly, the advance precautions will surely entail into lesser involvement of taxpayers’ money for bailing out troubled financial institutions.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere
1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging
phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>