GAO Cites Issues with Transparency in “Living Wills” Review

April 15, 2016

This week, the Government Accountability Office (GAO) released a report indicating that the secrecy surrounding how regulators determine whether resolution plans, or “living wills,” submitted by banks are credible “could undermine public and market confidence.”   By law banks are required to annually submit plans, but the GAO found it took regulators, on average, nine months to review those plans.  The GAO said by not disclosing this information, companies lack information they could use to assess and enhance their frameworks, and recommended regulators make that information public in the future.  The GAO also warned that a lack of information could "undermine public and market confidence" in bank resolution plans.

On a related note, this week the Federal Reserve and the FDIC ordered five large U.S. banks to make significant revisions to their living wills.  The regulators informed the banks their plans for a possible bankruptcy do not meet the legal standard laid out in the Dodd-Frank Act, which requires firms have credible plans to go through bankruptcy at no taxpayer expense.  Those banks have until October 1, 2016 to present revised plans or potentially face higher capital requirements, restrictions on growth or activities, or other sanctions.