Wells Fargo & Co. and HSBC Holdings Plc are among four banks that told U.S. regulators they could seek to sell units and place others into bankruptcy in the event of a crisis.
Royal Bank of Scotland Group Plc and BNP Paribas SA also filed the “living wills,” or road maps to help regulators safely dismantle them if they fail, with the Federal Reserve and Federal Deposit Insurance Corp., which disclosed summaries yesterday on its website.
The four represent a second tier of filers after banks with bigger U.S. operations began submitting living wills last year. Each document is meant to offer a step-by-step guide for unwinding a company through a bankruptcy without threatening the financial system. “Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company,” the regulators said in a statement.
The FDIC and Fed can force banks to divest businesses or make other changes to the plans, mandated by the 2010 Dodd-Frank Act, if regulators identify deficiencies. The FDIC also has the power to oversee a wind-down outside of the courts if U.S. officials believe that a failure would imperil the financial system.
Too Big to Fail
“We do not believe any bank should be too big to fail, and we believe the resolution plans are important pieces of post-crisis legislation,” Ancel Martinez, a spokesman for San Francisco-based Wells Fargo, said in an e-mailed statement.
HSBC said it would seek an “immediate sale” of its U.S. banking subsidiary and its U.S. broker-dealer. If the deposit-taking unit couldn’t be sold, the London-based lender said it could be resolved by having the FDIC transfer some assets to a new entity, divest business lines separately or in smaller chunks, or sell new stock. The bank didn’t explain how the transactions would work, or what entities would provide fresh capital.
“Along with others in the industry, HSBC is complying with requirements of the Dodd Frank Act and other regulations and submitted a U.S. resolution plan before July 1,” Neal McGarity, a New York-based spokesman for HSBC, said in an e-mailed statement.
BNP Paribas said its New York branch could be seized by state banking regulators and liquidated, while another entity of the firm may be placed into Chapter 11 bankruptcy. The company filed a separate plan for San Francisco-based Bank of the West, it’s U.S. deposit-taking unit.
Cesaltine Gregorio, a spokeswoman in New York for Paris-based BNP Paribas, had no immediate comment.
The four banks said some securities units could be liquidated through a process overseen by the Securities Investor Protection Corp., which seeks to protect customer accounts.
Aside from those steps, the plans released yesterday provided little information beyond what’s already public. Edinburgh-based RBS didn’t mention that the U.K. government, which owns 81 percent of the firm after rescuing it during the financial crisis, is considering whether to break it into smaller parts. Britain plans to hire Rothschild to help review the case for splitting the firm, two people with knowledge of the talks said yesterday.
Ed Canaday, an RBS spokesman in Stamford, Connecticut, declined to comment.
The living-will process started last year with an opening round of filings from 11 banks with more than $250 billion in U.S. non-bank assets, including JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., which must submit updated living wills by Oct. 1.
Jim Wigand, an FDIC official responsible for overseeing the plans, said last week that the initial living wills had “varying levels of quality, although they all had a ways to go.” Whether some of the biggest banks can convince regulators that they can be put through bankruptcy safely is “an open question,” said Wigand, who’s leaving the FDIC later this year.