April 13, 2016 / 11:40 PM / 4 years ago

UPDATE 1-Federal regulators investigating Wall St Journal's 'living wills' story

(Adds Wall Street Journal comment)

WASHINGTON, April 13 (Reuters) - The Federal Reserve and Federal Deposit Insurance Corporation are investigating how the Wall Street Journal came to report that the two agencies were giving failing grades to some U.S. banks’ “living wills” the day before the regulators officially announced their determinations.

A Fed spokesman, Eric Kollig, confirmed on Wednesday that the U.S. central bank has asked its inspector general, its internal watchdog, to check how the news outlet was able to report on Tuesday that at least half of the eight biggest U.S. banks, including J.P. Morgan Chase, would receive “harsh verdicts” on their plans for handling a potential bankruptcy without a federal bailout.

The FDIC’s chairman on Tuesday night asked the agency’s acting inspector general, Fred Gibson, to investigate the leak to the Journal of the results of the living will determinations, spokeswoman Barbara Hagenbaugh said.

On Wednesday, the two regulators said they gave failing grades to the plans of five big banks, including J.P. Morgan, starting a long regulatory chain that could end with breaking up the banks.

The Journal’s story hit Twitter and its home page hours before the regulators officially posted their determinations early on Wednesday morning and as financial markets prepared for banks to release their quarterly earnings.

“In an environment in which sources have become increasingly nervous about speaking with the press, this kind of investigation will only further intimidate them and impede the ability of journalists to help bring to light issues that affect the lives and livelihoods of American citizens,” the Journal’s editor in chief, Gerard Baker, said in a statement.

Under the Dodd-Frank Wall Street reform law, banks must submit plans annually showing how they would resolve a bankruptcy without relying on taxpayer money. If the regulators do not find the plans “credible,” they can impose higher capital requirements and stricter regulation. (Reporting by Lisa Lambert; Editing by Leslie Adler and Jonathan Oatis)

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