Five years after the financial crisis, concerns remain about whether blow-ups at big banks could lead to another round of taxpayer bailouts. Trading losses have cost JPMorgan nearly $6 billion so far, and scandals such as the alleged rigging of an international interest rate benchmark have only highlighted the risks lurking inside big banks.
U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.
The two-year-old program, which has been largely secret until now, is in addition to the “living wills” the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.
Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks’ problems during the financial crisis.
According to documents obtained by Reuters, the Federal Reserve and the U.S. Office of the Comptroller of the Currency first directed five banks – which also include Citigroup Inc, Morgan Stanley and JPMorgan Chase & Co – to come up with these “recovery plans” in May 2010.
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