WASHINGTON – Democratic senators sent a letter Monday to federal financial regulators pressing them to "remain vigilant" while grading big Wall Street banks' resolution plans.
The letter from Sens. Elizabeth Warren, D-Mass., and Joe Donnelly, D-Ind., to Federal Reserve Board Chair Janet Yellen and Federal Deposit Insurance Corp. Chairman Martin Gruenberg came on the eve of Yellen's testimony before the Senate Banking Committee.
"It is highly concerning that after a multiyear review process, the resolution plans, or living wills, of five large banks reveal that the banks are still too vulnerable to weather a major economic storm without threatening the economy," the letter said about the Dodd-Frank rule that requires big banks to submit living wills detailing how they could be resolved in a crisis.
"It is up to the regulators to utilize their existing authority and remain vigilant…We encourage you to consider all your statutory tools in Section 165 should you determine that the resubmitted living wills of the largest financial institutions are not credible," the letter said.
The Fed and the FDIC can force the banks to start restructuring themselves and sell off assets if both regulators determine the banks' resolution plans are flawed. The two regulators agreed recently that the plans laid out by Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street and Wells Fargo were "not credible."
The letter from Warren and Donnelly also came on the heels of a speech by Minnesota Fed President Neel Kashkari, who said the process for the living wills "doesn't inspire a lot of confidence."
Eight U.S. banks submitted living wills in July and of those, only Citigroup effectively passed. The FDIC determined that Goldman Sachs' plan was not credible and the Fed declared that Morgan Stanley's plan was not credible, but because the two regulators did not come to the same conclusion, the statutory requirement that could allow the regulators to start breaking them up was not invoked.
The five banks that failed are required to submit updated plans by Oct. 1, 2016.