By Matt Macfarland
Both banks (click here) outlined new liquidity models and frameworks for triggering subsidiary support if the parent companies fail.
The five banks have tried this before and it was not accepted.
April 13, 2016
By Jessie Hamilton and Elizabeth Dexheimer
JPMorgan Chase & Co., (click here) Bank of America Corp. and three other major U.S. banks failed to persuade regulators they could go bankrupt without disrupting the broader financial system and could now face a tighter leash from Washington after government agencies used one of the most significant post-crisis powers bestowed under the Dodd-Frank Act.
The banks -- also including Wells Fargo & Co., Bank of New York Mellon Corp. and State Street Corp. -- must scrap their resolution plans, or living wills, after the Federal Reserve and the Federal Deposit Insurance Corp. said versions submitted last year failed to satisfy their requirements. The lenders will have until Oct. 1 to rewrite the plans -- but under the pressure that another failure would give regulators power to subject them to more capital or liquidity constraints on their businesses.
“The FDIC and Federal Reserve are committed to carrying out the statutory mandate that systemically important financial institutions demonstrate a clear path to an orderly failure under bankruptcy at no cost to taxpayers,” FDIC Chairman Martin Gruenberg said in a statement Wednesday....
My understanding of this strategy is to keep subsidiaries operational should the primary bank fail. It would reduce the impact on the economy. The liquidity of the banks is the question. A good deal of the financial picture for the banks is supported by the Federal reserve. The banks are required to maintain a percentage of their deposits in liquidity. It is a low percentage of about 15 percent, but, that was some time ago. The banks, especially the big banks, like to invest in exotic financial instruments and liquidity does not fit into that picture.
That aside, there is a function of The Federal Reserve little bother to understand. Local economies should investigate the possibility to funding their interests independently rather than through banks that offer a higher interest rate than the current rate from The Fed.
The community development function (click here) within the Federal Reserve promotes fair and informed access to financial markets for communities and individuals, recognizing the particular needs of underserved populations. It does so by convening stakeholders to collaborate on community and economic development initiatives, conducting and sharing applied research, and identifying emerging issues....
