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US corporations have $1.4tn hidden in tax havens, claims Oxfam report
Charity analysis of the 50 biggest US businesses claims Apple have $181bn held offshore, while General Electric has $119bn and Microsoft $108bn The report singled out British overseas territories such as Bermuda for their popularity with US firms seeking to slash their tax bill by ‘profit-shifting’. Photograph: AlamyRob Davies Thursday 14 April 2016 00.01 EDT Last modified on Thursday 14 April 2016 03.53 EDT Save for later US corporate giants such as Apple, Walmart and General Electric have stashed $1.4tn (£980bn) in tax havens, despite receiving trillions of dollars in taxpayer support, according to a report by anti-poverty charity Oxfam. Tax havens don’t need to be reformed. They should be outlawedRichard Brooks The Panama Papers demonstrate that for all the fine words about transparency on tax, the world’s kleptocrats are still getting away with it Read moreThe sum, larger than the economic output of Russia, South Korea and Spain, is held in an “opaque and secretive network” of 1,608 subsidiaries based offshore, said Oxfam. The charity’s analysis of the financial affairs of the 50 biggest US corporations comes amid intense scrutiny of tax havens following the leak of the Panama Papers. And the charity said its report, entitled Broken at the Top was a further illustration of “massive systematic abuse” of the global tax system. Technology giant Apple, the world’s second biggest company, topped Oxfam’s league table, with some $181bn held offshore in three subsidiaries. Boston-based conglomerate General Electric, which Oxfam said has received $28bn in taxpayer backing, was second with $119bn stored in 118 tax haven subsidiaries. Computing firm Microsoft was third with $108bn, in a top 10 that also included pharmaceuticals giant Pfizer, Google’s parent company Alphabet and Exxon Mobil, the largest oil company not owned by an oil-producing state. In defence of ‘tax havens’: offshore banking is not the same as dodgy dealing Nigel Green Read moreOxfam contrasted the $1.4tn held offshore with the $1tn paid in tax by the top 50 US firms between 2008 and 2014. It pointed out that the companies had also enjoyed a combined $11.2tn in federal loans, bailouts and loan guarantees during the same period. Overall, the use of tax havens allowed the US firms to reduce their effective tax rate on $4tn of profits from the US headline rate of 35% to an average of 26.5% between 2008 and 2014. The charity said this had helped firms spend billions on an “army” of lobbyists calling for greater state support in the form of loans, bailouts and guarantees, funded by taxpayers. The top 50 US firms spent $2.6bn between 2008 and 2014 on lobbying the US government, Oxfam said. “For every $1 spent on lobbying, these 50 companies collectively received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts,” said Oxfam. Robbie Silverman, senior tax adviser at Oxfam said: “Yet again we have evidence of a massive systematic abuse of the global tax system. “We can’t go on with a situation where the rich and powerful are not paying their fair share of tax, leaving the rest of us to foot the bill. “Governments across the globe must come together now to end the era of tax havens.” Oxfam estimates that tax avoidance by US corporations costs the world’s largest economy some $111bn a year, but said it was also fuelling the global wealth divide by draining $100bn from the poorest countries. “Tax dodging practised by corporations and enabled by federal policymakers contributes to dangerous inequality that is undermining our social fabric and hindering economic growth,” the report said. Oxfam also singled out British overseas territories such as Bermuda for their popularity with US firms seeking to slash their tax bill by “profit-shifting”. In 2012, said Oxfam, US firms reported $80bn of profit in Bermuda, more than their combined reported profits in Japan, China, Germany and France, four of the world’s five largest economies. The charity called on the US government to pass the Stop Tax Haven Abuse Act, including a requirement for firms to report their tax contribution on a country-by-country basis. Country-by-country reporting has been recommended by a host of non-governmental organisations and charities to prevent companies from artificially shifting their income out of the poorest countries. The Fed Sends A Frightening Letter To JPMorgan, Corporate Media Yawns Submitted by Tyler Durden on 04/15/2016 22:45 -0400 ZeroHedge.com Submitted by Pam Martens and Russ Martens via WallStreetOnParade.com, Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system. A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control. At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this? It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.” That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that “Dodd-Frank Financial Reform Is Working” when it comes to the behemoth banks on Wall Street. How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase. The OFR study was authored by Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, who found the following: “…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults. High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system. The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.” The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis. The two regulators released background documents yesterday as part of flunking the wind-down plans (living wills) of five major Wall Street banks. (In addition to JPMorgan Chase, plans were rejected at Wells Fargo, Bank of America, State Street and Bank of New York Mellon.) One paragraph in the Resolution Plan Assessment Framework and Firm Determinations (2016) used the word “liquidity” 11 times: “Firms must be able to reliably estimate and meet their liquidity needs prior to, and in, resolution. In this regard, firms must be able to track and measure their liquidity sources and uses at all material entities under normal and stressed conditions. They must also conduct liquidity stress tests that appropriately capture the effect of stresses and impediments to the movement of funds. Holding liquidity in a manner that allows the firm to quickly respond to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities, is critical to the execution of the plan. Maintaining sufficient and appropriately positioned liquidity also allows the subsidiaries to continue to operate while the firm is being resolved. In assessing the firms’ plans with regard to liquidity, the agencies evaluated whether the companies were able to appropriately forecast the size and location of liquidity needed to execute their resolution plans and whether those forecasts were incorporated into the firms’ day-to-day liquidity decision making processes. The agencies also reviewed the current size and positioning of the firms’ liquidity resources to assess their adequacy relative to the estimated liquidity needed in resolution under the firm’s scenario and strategy. Further, the agencies evaluated whether the firms had linked their process for determining when to file for bankruptcy to the estimate of liquidity needed to execute their preferred resolution strategy.” Apparently, the Federal regulators believe JPMorgan Chase has a problem with the “location,” “size and positioning” of its liquidity under its current plan. The April 12 letter to JPMorgan Chase addressed that issue as follows: “JPMC does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution…JPMC’s liquidity profile is vulnerable to adverse actions by third parties.” The regulators expressed the further view that JPMorgan was placing too much “reliance on funds in foreign entities that may be subject to defensive ring-fencing during a time of financial stress.” The use of the term “ring-fencing” suggests that the regulators fear that foreign jurisdictions might lay claim to the liquidity to protect their own financial counterparty interests or investors. JPMorgan’s sprawling derivatives portfolio that encompasses $51 trillion notional amount as of December 31, 2015 is also causing angst at the Fed and FDIC. The regulators wanted more granular detail on what would happen if JPMorgan’s counterparties refused to continue doing business with it if rating agencies cut its credit ratings. The regulators asked for a “narrative describing at least one pathway” for winding down the derivatives portfolio, taking into account a number of factors, including “the costs and challenges of obtaining timely consents from counterparties and potential acquirers (step-in banks).” The regulators wanted to see the “losses and liquidity required to support the active wind-down” of the derivatives portfolio “incorporated into estimates of the firm’s resolution capital and liquidity execution needs.” According to the Office of the Comptroller of the Currency’s (OCC) derivatives report as of December 31, 2015, JPMorgan Chase is only centrally clearing 37 percent of its derivatives while a whopping 63 percent of its derivatives remain in over-the-counter contracts between itself and unnamed counterparties. The Dodd-Frank reform legislation had promised the public that derivatives would all become exchange traded or centrally cleared. Indeed, on March 7 President Obama falsely stated at a press conference that when it comes to derivatives “you have clearinghouses that account for the vast majority of trades taking place.” But the OCC has now released four separate reports for each quarter of 2015 showing just the opposite of what the President told the press and the public on March 7. In its most recent report the OCC, the regulator of national banks, states that “In the fourth quarter of 2015, 36.9 percent of the derivatives market was centrally cleared.” Equally disturbing, the most dangerous area of derivatives, the credit derivatives that blew up AIG and necessitated a $185 billion taxpayer bailout, remain predominately over the counter. According to the latest OCC report, only 16.8 percent of credit derivatives are being centrally cleared. At JPMorgan Chase, more than 80 percent of its credit derivatives are still over-the-counter. Three of the five largest U.S. banks (JPMorgan Chase, Bank of America and Wells Fargo) have now had their wind-down plans rejected by the Federal agency insuring bank deposits (FDIC) and the Federal agency (Federal Reserve) that secretly sluiced $13 trillion in rollover loans to the insolvent or teetering banks in the last epic crisis that continues to cripple the country’s economic growth prospects. Maybe it’s time for the major newspapers of this country to start accurately reporting on the scale of today’s banking problem. Open Letter to the Banks
Submitted by Gold Standard Institute on 01/12/2016 01:57 -0400 Jamie Dimon, JP Morgan Chase Brian T. Moynihan, Bank of America Michael Corbat, Citigroup Gentlemen: On Friday, I attended a digital money summit at the Consumer Electronics Show. I am writing to you to warn you about the disruption that is about to occur in banking. There are many startups (and larger companies too) that are gunning for you. Perhaps you have watched what Uber has done to the taxi business? Well, these guys are planning the same thing for the banking business. Banks used to allow even a child with a $10 deposit to spread his risk across a large portfolio of loans. At the same time, banks made it possible for a corporate borrower to raise $10,000,000 from a large group of depositors. In short, the banking business is investment aggregation and risk management. That business cannot be disrupted. The bigger it gets, the more difficult to displace. It’s like eBay, all the depositors come to the bank because that’s where they can earn interest. All the borrowers come, because that’s where they can get the money they need. The bigger the bank gets, at least in a free market under the gold standard, the safer it is for depositors. Today, however, you are quite vulnerable to disruption. That’s because you are not really in the banking business any more. Over three decades, you have worked with the Federal Reserve to eliminate interest. The end result is that you now offer depositors a return-free risk. Depositors cannot earn interest in a bank account (yes, I know that in the US the yield is technically not zero yet, but it’s getting there). However, a growing number are aware of the risks. For example, you have incalculable exposure to derivatives. You own sovereign debt which the world now knows is not risk-free. In fact, you have a large staff and churn through a lot of activity in order to deliver scant yield to your depositors. I can tell you what I observed in the digital money program. People, especially Millennials, now think of banking in terms of features like ATMs, payment clearing, fraud prevention, and point of sale solutions. However, these are just add-on services, not the core of banking. You have abandoned that core, and only the add-ons remain. Startups can take these businesses. They have lower costs. They are more focused. They have hip new brands, untainted by the financial crisis and the bailouts. They have developed an array of new technologies. And, of course, they are less regulated (before you think to lobby to impose more regulation on them, think about that taint to your brand). You’re in a tight spot. After decades of smoking the drug known as falling interest, you’re now dependent on it. The thought of a return to a 5% yield on the 10-year Treasury is not pleasant. Nevertheless, I urge you to think about it. The alternative is to let the fintech disruptors carve up your retail business. Sincerely, Keith Weiner, PhD The Gold Standard Institute Deutsche Bank Admits It Rigged Gold Prices, Agrees To Expose Other Manipulators
Submitted by Tyler Durden on 04/14/2016 22:48 -0400 ZeroHedge.com Earlier today when we reported the stunning news that DB has decided to "turn" against the precious metals manipulation cartel by first settling a long-running silver price fixing lawsuit which in addition to "valuable monetary consideration" said it would expose the other banks' rigging having also "agreed to provide cooperation to plaintiffs, including the production of instant messages, and other electronic communications, as part of the settlement" we said "since this is just one of many lawsuits filed over the past two years in Manhattan federal court in which investors accused banks of conspiring to rig rates or prices in financial and commodities markets, we expect that now that DB has "turned" that much more curious information about precious metals rigging will emerge, and will confirm what the "bugs" had said all along: that the precious metals market has been rigged all along." This was confirmed moments ago when Reuters reported that Deutsche Bank has also reached a settlement in US litigation alleging the bank conspired to fix gold prices. In other words, hours after admitting it was rigging the silver market, it did the same for gold. Some more headlines:
And with that the floodgates open. As a reminder, this is what we reported just hours ago on an identical settlement involving Deutsche Bank admitting to also rigging silver: Deutsche Bank Confirms Silver Market Manipulation In Legal Settlement, Agrees To Expose Other Banks Back in July of 2014, we reported that in an attempt to obtain if not compensation, then at least confirmation of bank manipulation in the precious metals industry, a group of silver bullion banks including Deutsche Bank, Bank of Nova Scotia and HSBC (later UBS was also added to the defendants) were accused of manipulating prices in the multi-billion dollar market. The lawsuit, which was originally filed in a New York district court by veteran litigator J. Scott Nicholson, a resident of Washington DC, alleged that the banks, which oversee the century-old silver fix manipulated the physical and COMEX futures market since January 2007. The lawsuit subsequently received class-action status. It was the first case to target the silver fix. Many expected that this case would never go anywhere and that the defendant banks would stonewall indefinitely: after all their legal budgets were far greater than the plaintiffs. Which is why we were surprised to read overnight that not only has this lawsuit against precious metals manipulation not been swept away, but that the lead defendant, troulbed German bank Deutsche Bank agreed to settle the litigation over allegations it illegally conspired with Bank of Nova Scotia and HSBC Holdings Plc to fix silver prices at the expense of investors, Reuters reported citing a court filing by law firm Lowey. Terms were not disclosed, but the accord will include a monetary payment by the German bank. It goes without saying, that there would have been neither a settlement nor a payment if the banks had done nothing wrong. According to Reuters, Deutsche Bank has signed a binding settlement term sheet, and is negotiating a formal settlement agreement to be submitted for approval by U.S. District Judge Valerie Caproni, who oversees the litigation. A Deutsche Bank spokeswoman declined to comment. Lawyers for the investors did not immediately respond to requests for comment. As noted above, investors had accused Deutsche Bank, HSBC and ScotiaBank of abusing their power as three of the world's largest silver bullion banks to dictate the price of silver through a secret, once-a-day meeting known as the Silver Fix. None of this will come as a big surprise to readers, most of whom have been aware that this took place for years. But wait there's more. In a curious twist, the settlement letter reveals a stunning development, namely that the former members of the manipulation cartel have turned on each other. To wit: Since this is just one of many lawsuits filed over the past two years in Manhattan federal court in which investors accused banks of conspiring to rig rates or prices in financial and commodities markets, we expect that now that DB has "turned" that much more curious information about precious metals rigging will emerge, and will confirm what the "bugs" had said all along: that the precious metals market has been rigged all along. Finally, we'll just remind readers that the US commodity "regulator", the CFTC in 2013 closed its five year investigation concerning allegations that the biggest bullion banks manipulate silver markets and prices. It proudly reported in September 2013 that it found no evidence of wrongdoing and dropped the probe. This is what it said: The Commodity Futures Trading Commission (CFTC or Commission) Division of Enforcement has closed the investigation that was publicly confirmed in September 2008 concerning silver markets. The Division of Enforcement is not recommending charges to the Commission in that investigation. For law enforcement and confidentiality reasons, the CFTC only rarely comments publicly on whether it has opened or closed any particular investigation. Nonetheless, given that this particular investigation was confirmed in September 2008, the CFTC deemed it appropriate to inform the public that the investigation is no longer ongoing. Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets. EDITORIAL NOTE FROM MONEY AND CHANGE: Countries need to do what Iceland did during their banking crisis - put the criminal bankers in jail! It worked! U.S. regulators fail 'living wills' at 5 of 8 big banks By Lisa Lambert WASHINGTON, April 13 (Reuters) - U.S (Other OTC: UBGXF - news) . regulators gave a failing grade to five big banks on Wednesday, including JPMorgan Chase & Co and Wells Fargo (Hanover: NWT.HA - news) & Co, on their plans for a bankruptcy that would not rely on taxpayer money, giving them until Oct (HKSE: 3366-OL.HK - news) . 1 to make amends or risk sanctions. The move officially starts a long regulatory chain that could end with breaking up the banks. Nearly a decade after the financial crisis, it underscored how the debate about banks being "too big to fail" continues to rage in Washington and exasperate on Wall Street. The banks failed for reasons ranging from the way liquidity would be housed and shuffled among domestic and foreign subsidiaries to the manner in which executives would communicate problems as they arose during a crisis. Wednesday's announcement was the first time the two major banking regulators, the Federal Reserve and the Federal Deposit Insurance Corporation, issued joint determinations flunking banks' plans, commonly called "living wills." If the five, which also included Bank of America Corp , State Street Corp and Bank of New York Mellon Corp., do not correct serious "deficiencies" in their plans by October, they could face stricter regulations, like higher capital requirements or limits on business activities, regulators said. Accomplishing that task may not be easy: criticized banks have five months to reassess and rewrite wide swaths of their resolution plans to regulators' satisfaction. At the same time, compliance departments will also be focused on regulatory stress tests, whose results will be released before October. If the deficiencies persist for two years, then the banks will have to divest their assets. They have until July 2017 to address more minor "shortcomings." The regulators' report coincided with the start of banks' earnings reporting period and bank shares rallied. Shares (Berlin: DI6.BE - news) of JP Morgan (Other OTC: MGHL - news) , Citigroup (NYSE: C - news) and Bank of America (Swiss: BAC.SW - news) all closed up more than 3 percent and Wells Fargo shares were up 2.87 percent. The requirement for a living will was part of the Dodd-Frank Wall Street reform legislation passed in the wake of the 2007-2009 financial crisis, when the U.S. government spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S. economy. The plans are separate from the Fed's stress tests, where banks demonstrate stability by showing how they would withstand economic shocks in hypothetical scenarios. "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. "Today's action is a significant step toward achieving that goal." But the agency's vice chairman, Thomas Hoenig, who was a voting member of the Federal Open Market Committee during the crisis, said the plans show that no firm is "capable of being resolved in an orderly fashion through bankruptcy." "The goal to end 'too big to fail' and protect the American taxpayer by ending bailouts remains just that: only a goal," he said. The three remaining large, systemically important banks, which the U.S. government considers "too big to fail," did not fare much better in their evaluations, but sidestepped potential sanctions because they were not given joint determinations. The regulators continue to assess plans for four foreign banks labeled "systemically important" - Barclays PLC (LSE: BARC.L - news) , Credit Suisse Group, Deutsche Bank AG (LSE: 0H7D.L - news) , and UBS Group AG (LSE: 0R3T.L - news) . The FDIC alone determined the plan submitted by Goldman Sachs was not credible, while the Federal Reserve Board on its own found Morgan Stanley (Xetra: 885836 - news) 's plan not credible. Citigroup's living will did pass, but regulators noted it had "shortcomings." Goldman Sachs (NYSE: GS-PB - news) said in a statement it has made "significant progress" and Morgan Stanley said resolution planning is one of its "highest priorities." Citigroup will work to address the shortcomings, Chief Executive Michael Corbat said in a statement. 'KEY VULNERABILITIES' The deficiencies across the five banks largely revolved around liquidity, governance and operations. While JPMorgan has "made notable progress in a range of areas," the regulators said it "has key vulnerabilities," including an inability to estimate the liquidity needed and available for funding bankruptcy resolution and insufficient resources for winding down derivatives. On a conference call on JPMorgan's earnings, bank executives expressed disappointment with the determination and Chief Executive Officer Jamie Dimon said the bank has "tons of liquidity." "It (Other OTC: ITGL - news) 's more about reporting, legal entities and things like that," he said. "And if other firms can satisfy that I'd be surprised if we can't." The agencies said Wells Fargo's living will "exhibited a lack of governance and certain operational capabilities." By October it must demonstrate a "robust process to ensure quality control and accuracy" in its plan and lay out legally how different lines of business can be restructured and its regional units can be separated. Wells, State Street and Bank of New York all said in statements they will work to address the deficiencies by the October 1 deadline. Bank of America did not comment. The determinations raised debate about how living wills can help banks survive a financial catastrophe. Proponents of stronger financial regulation welcomed them, with Senator Sherrod Brown of Ohio, the most powerful Democrat on the Senate Banking Committee, saying they were "an important step in the effort to protect Americans from being on the hook for the failures of 'too big to fail' banks in the future." Democratic presidential candidate Hillary Clinton said regulators need to break big banks apart if they don't fix their living will problems over time. Her rival, Bernie Sanders, pointed out on Twitter (Xetra: A1W6XZ - news) that many big banks have only gotten bigger since they were bailed out during the financial crisis. The U.S. Chamber of Commerce, though, said the process "is broken." "Contradictory outcomes through different tools such as stress tests and living wills harm the ability of regulators to achieve financial stability and for market participants to understand what regulators are doing," said David Hirschmann, head of the business group's capital markets center. U.S. regulators fail 'living wills' at 5 of 8 big banks
By Lisa Lambert WASHINGTON, April 13 (Reuters) - U.S (Other OTC: UBGXF - news) . regulators gave a failing grade to five big banks on Wednesday, including JPMorgan Chase & Co and Wells Fargo (Hanover: NWT.HA - news) & Co, on their plans for a bankruptcy that would not rely on taxpayer money, giving them until Oct (HKSE: 3366-OL.HK - news) . 1 to make amends or risk sanctions. The move officially starts a long regulatory chain that could end with breaking up the banks. Nearly a decade after the financial crisis, it underscored how the debate about banks being "too big to fail" continues to rage in Washington and exasperate on Wall Street. The banks failed for reasons ranging from the way liquidity would be housed and shuffled among domestic and foreign subsidiaries to the manner in which executives would communicate problems as they arose during a crisis. Wednesday's announcement was the first time the two major banking regulators, the Federal Reserve and the Federal Deposit Insurance Corporation, issued joint determinations flunking banks' plans, commonly called "living wills." If the five, which also included Bank of America Corp , State Street Corp and Bank of New York Mellon Corp., do not correct serious "deficiencies" in their plans by October, they could face stricter regulations, like higher capital requirements or limits on business activities, regulators said. Accomplishing that task may not be easy: criticized banks have five months to reassess and rewrite wide swaths of their resolution plans to regulators' satisfaction. At the same time, compliance departments will also be focused on regulatory stress tests, whose results will be released before October. If the deficiencies persist for two years, then the banks will have to divest their assets. They have until July 2017 to address more minor "shortcomings." The regulators' report coincided with the start of banks' earnings reporting period and bank shares rallied. Shares (Berlin: DI6.BE - news) of JP Morgan (Other OTC: MGHL - news) , Citigroup (NYSE: C - news) and Bank of America (Swiss: BAC.SW - news) all closed up more than 3 percent and Wells Fargo shares were up 2.87 percent. The requirement for a living will was part of the Dodd-Frank Wall Street reform legislation passed in the wake of the 2007-2009 financial crisis, when the U.S. government spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S. economy. The plans are separate from the Fed's stress tests, where banks demonstrate stability by showing how they would withstand economic shocks in hypothetical scenarios. "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. "Today's action is a significant step toward achieving that goal." But the agency's vice chairman, Thomas Hoenig, who was a voting member of the Federal Open Market Committee during the crisis, said the plans show that no firm is "capable of being resolved in an orderly fashion through bankruptcy." "The goal to end 'too big to fail' and protect the American taxpayer by ending bailouts remains just that: only a goal," he said. The three remaining large, systemically important banks, which the U.S. government considers "too big to fail," did not fare much better in their evaluations, but sidestepped potential sanctions because they were not given joint determinations. The regulators continue to assess plans for four foreign banks labeled "systemically important" - Barclays PLC (LSE: BARC.L - news) , Credit Suisse Group, Deutsche Bank AG (LSE: 0H7D.L - news) , and UBS Group AG (LSE: 0R3T.L - news) . The FDIC alone determined the plan submitted by Goldman Sachs was not credible, while the Federal Reserve Board on its own found Morgan Stanley (Xetra: 885836 - news) 's plan not credible. Citigroup's living will did pass, but regulators noted it had "shortcomings." Goldman Sachs (NYSE: GS-PB - news) said in a statement it has made "significant progress" and Morgan Stanley said resolution planning is one of its "highest priorities." Citigroup will work to address the shortcomings, Chief Executive Michael Corbat said in a statement. 'KEY VULNERABILITIES' The deficiencies across the five banks largely revolved around liquidity, governance and operations. While JPMorgan has "made notable progress in a range of areas," the regulators said it "has key vulnerabilities," including an inability to estimate the liquidity needed and available for funding bankruptcy resolution and insufficient resources for winding down derivatives. On a conference call on JPMorgan's earnings, bank executives expressed disappointment with the determination and Chief Executive Officer Jamie Dimon said the bank has "tons of liquidity." "It (Other OTC: ITGL - news) 's more about reporting, legal entities and things like that," he said. "And if other firms can satisfy that I'd be surprised if we can't." The agencies said Wells Fargo's living will "exhibited a lack of governance and certain operational capabilities." By October it must demonstrate a "robust process to ensure quality control and accuracy" in its plan and lay out legally how different lines of business can be restructured and its regional units can be separated. Wells, State Street and Bank of New York all said in statements they will work to address the deficiencies by the October 1 deadline. Bank of America did not comment. The determinations raised debate about how living wills can help banks survive a financial catastrophe. Proponents of stronger financial regulation welcomed them, with Senator Sherrod Brown of Ohio, the most powerful Democrat on the Senate Banking Committee, saying they were "an important step in the effort to protect Americans from being on the hook for the failures of 'too big to fail' banks in the future." Democratic presidential candidate Hillary Clinton said regulators need to break big banks apart if they don't fix their living will problems over time. Her rival, Bernie Sanders, pointed out on Twitter (Xetra: A1W6XZ - news) that many big banks have only gotten bigger since they were bailed out during the financial crisis. The U.S. Chamber of Commerce, though, said the process "is broken." "Contradictory outcomes through different tools such as stress tests and living wills harm the ability of regulators to achieve financial stability and for market participants to understand what regulators are doing," said David Hirschmann, head of the business group's capital markets center. |
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