Nov 4 (Reuters) - The U.S. Federal Reserve is pushing big banks to do more to prove in so-called “living wills” that they can be wound down safely if they become unsound, board chair Janet Yellen said on Wednesday.
“We are asking for very substantial changes on the part of these firms,” Yellen said in response to questions from a U.S. House of Representatives panel about why the Fed’s assessment of earlier wind-up plans submitted by big banks in 2013 was not as publicly critical as that of another bank regulator, the Federal Deposit Insurance Corp (FDIC).
The FDIC said in August 2014 that it had found living wills of 11 big banks “not credible,” while the Fed said only that the plans need considerable work.
To keep the government from having to bail out banks whose collapse could damage the economy, Dodd-Frank Act financial reforms require banks to write plans to show the two regulators how they could be dismembered and have their critical functions taken on by others without wrecking the financial system.
The law gives regulators the power to force big banks to simplify their operations, or even break up, if they find the plans are not workable.
The power to break up the banks has not been tested, but is one of the government’s primary strategies for ending too-big-to-fail bailouts.
Yellen said told the House Financial Services Committee that the Fed was not more harsh in its past assessments because “we expected to have to work with the firms for a few rounds” to understand what should be in good plans and then give the banks “reasonable guidance” to the regulators’ expectations.
The plans tend to be thousands of pages long.
Yellen said the Fed and the FDIC are going over the latest versions of living wills from the banks and “in the coming months we will make important decisions.” (Editing by David Gregorio)