WASHINGTON Top regulators on Wednesday said the clock is ticking for some of the largest financial institutions to come up with better contingency plans should they need to file for bankruptcy.
"We are not in the right place in resolution. The pace is pretty slow given what we experienced as a country and really across the globe," Jeremiah Norton, a board member on the Federal Deposit Insurance Corp., said here at a conference on financial stability.
The largest and most complex banks considered systemically important are required to submit annual resolution plans otherwise known as "living wills" for approval to the FDIC and the Federal Reserve Board.
In the first public assessment of 11 firms' plans this summer, the FDIC and Fed found significant flaws, saying institutions made overly optimistic assumptions and that they lacked a clear path to restructure the firms in the event of a problem. The firms had already submitted their 2014 plans, but regulators said the banks must improve by next year's deadline in July.
Speaking at the same conference, FDIC Vice Chairman Thomas Hoenig said that if banks' next group of plans are also rejected, regulators may take further action.
"If we do not get a credible plan that we are satisfied with then we have the authority to increase our supervision , to increase capital requirements and make the industry more resilient to require divestiture of certain assets around the world," Hoenig said.
Hoenig added that he believes resolution plans submitted by institutions should be made publicly available unless a firm can prove that certain parts of the plan reveal proprietary information. He argued that it would lead to "a more satisfactory answer in the long-term" because the market or Congress could determine that perhaps an institution is too large or complex for an orderly resolution and that certain laws might need to be changed.
Richmond Fed President Jeffrey Lacker said earlier in the day that "clearly, substantial work remains to be done" after the firms failed to identify the sorts of structural or practice changes needed for an appropriate resolution.