HSBC, BNP and RBS Faulted on Living Wills by U.S. Regulators

HSBC Holdings Plc, BNP Paribas SA and Royal Bank of Scotland Group Plc must conduct top-to-bottom rewrites of plans showing how they can be safely unwound in bankruptcy before resubmitting the living wills to U.S. regulators.

The Federal Reserve and Federal Deposit Insurance Corp. told the banks Monday that their 2014 resolution plans don’t pass muster because they rely on unrealistic assumptions and inadequate analysis. The FDIC called the plans “not credible,” and the Fed said the banks must take “immediate action” to fix their shortcomings.

The living wills, required by the Dodd-Frank Act, are meant to show big banks can be shuttered without threatening the broader financial system. Regulators last year rejected plans submitted by 11 of the largest banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., and called for changes similar to those sought from the European banks.

In rejecting the work of HSBC, BNP and RBS, the agencies told them to amend certain financial contracts, make sure their critical internal services can stay intact through a failure and show they can quickly produce reliable information in such an emergency. Fed and FDIC officials will meet with the firms on those expectations as the companies prepare to meet their next deadline by Dec. 31, the agencies said.

Spokesmen for BNP, RBS and HSBC declined to comment.

Different Approaches

In their rejections, the two agencies took different approaches. If the Fed had agreed with the FDIC’s finding that the plans weren’t credible, it would have triggered a requirement that the banks re-issue the documents under a tight timeline. The agencies had similarly split on the 11 banks whose plans were rejected last year.

In calling for the living wills, regulators separate lenders into tiers based on their non-bank U.S. assets. HSBC, BNP and RBS are in the second group of lenders with assets between $100 billion and $250 billion. That group also includes Wells Fargo & Co., which was told by regulators in November that its plan could work after some revisions.

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