Four Takeaways After Wells Failed Its Living Will Test
By John Heltman and Lalita Clozel and Kate Berry
When regulators decided Tuesday to flunk Wells Fargo’s resolution plan, it marked the first time a major U.S. bank has been sanctioned for not having a strategy to resolve itself in bankruptcy. … In the process of resolving regulators’ complaints, Bank of New York Mellon opted to embrace that strategy, leaving Wells the only bank to go in a different direction—and the only one to fail. Karen Shaw Petrou, managing partner with Federal Financial Analytics, said that it’s easy to put two and two together. “The agencies really do favor single point of entry,” Petrou said, noting that though the agencies maintain that they are neutral on resolution strategy, “they’re not.” … Petrou noted that the sanctions were somewhat surprising because by and large, Wells has the most traditional and least complex business lines of any of the GSIBs. “I don’t know that they were made an example of,” Petrou said. “It’s just surprising result because they’re the least complex of all the GSIBs.” Still, On the whole, regulators are getting serious concessions on major issues related to structure and governance — especially considering the position the largest banks were in circa 2008. “The most important thing in the credibility of the process is all of the changes that GSIBs have made to pass,” Petrou said. “They’ve significantly restructured themselves.”