(Bloomberg) -- This week, for the third time, the biggest U.S. bankshave sent regulators detailed plans for their own demise. The regulators’ response to those filings has been far less detailed.

The bankruptcy plans, known as living wills, are designed to reassure the public and the market that banks are not “too big to fail” and that they could go bankrupt without damaging the rest of the economy. A group of 11 banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. had to file a new round of plans yesterday even though they have yet to get a response from regulators on documents from last year.

The lack of feedback from the the Federal Deposit Insurance Corp. and Federal Reserve has prompted analysts and banking officials to question whether the process is effective. It has also complicated the situation for three systemically important firms that aren’t banks but need to file living wills for the first time this year -- Prudential Financial Inc., American International Group Inc. and General Electric Co.’s financial arm.

“One of the major concerns the banks have had is the absence of feedback concerning prior filings,” said Donald Lamson, who represents financial institutions at Shearman & Sterling LLP in Washington. The banks are left trying to squeeze as much information as they can from the agencies’ examiners and from officials’ public comments, he said.


The 2010 Dodd-Frank Act required the annual wills with the intent of preventing the kind of bailouts triggered by the 2008 financial crisis. The plans must describe a hypothetical bankruptcy that doesn’t harm the rest of the financial industry, and regulators are supposed to decide whether the companies’ approaches are “credible.” If plans aren’t credible, regulators can ask for improvements or -- if shortcomings persist -- force structural and portfolio changes at the firms.

“The easiest thing is to say nothing, which is what they’re doing,” said Bartlett Naylor, a financial policy advocate at Washington-based Public Citizen. His group sees Wall Street banks as dangerously complex, and he said he doubts their ability to write bankruptcy plans that regulators could find believable. “To say they’re credible stretches credibility.”

Naylor complained that the portions made public currently don’t reveal much more “than a careful student can find from already-published reports.”


The agencies’ most recent response to how the banks were doing with their plans came in general guidance issued more than a year ago which made clear that the banks weren’t yet meeting the challenge. Regulators are now aiming to issue individual responses to the firms “in the near future,” said Andrew Gray, an FDIC spokesman.

“The FDIC and the Federal Reserve are working cooperatively to work through the issues and decide what feedback to give the firms,” Gray said in an e-mail. “The most important thing is getting the right feedback to the firms and making it as meaningful and as constructive as possible.”

Two of the three non-bank firms filing for the first time this year are insurers, including AIG, whose 2008 bailout cost the U.S. $182.3 billion. The insurer finished repaying the rescue in late 2013, and has said it embraces increased U.S. oversight.

The living wills may provide clues as to how federal and state regulators will work together to oversee the systemically risky insurers, said Howard Mills, a former New York insurance regulator who now works as chief adviser at Deloitte LLP’s insurance-industry group. Insurers are primarily overseen by state regulators in the U.S., and those watchdogs already have the ability to take control of failing firms and wind down their obligations.


“A lot of people felt like, why do we even need to have this discussion of living wills for insurers?” Mills said in a phone interview. “They’ve got a long-established liquidation system in the states. Where companies have failed, they’ve been very successfully run off.”

The plans may also offer insight into insurers’ businesses that aren’t subject to state regulation, like AIG’s Financial Products unit, whose derivatives wagers contributed to the company’s 2008 rescue, said Edward Mills, a financial policy analyst at FBR & Co.

For regulators, silence may be the best response for the time being, because “banks still don’t know critical policy assumptions on which to base their resolution planning,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc.

Petrou said other unfinished work at the agencies, such as figuring out how to use another Dodd-Frank power for government seizures of the firms, must be done before the banks can be held accountable for their plans.

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