Fed Finally Finds The 230 Trillion Number: Blasts Banks' "Living Wills", Says Taxpayers Still On The Hook

Tyler Durden's picture

Having torched Janet Yellen over the weakness of the so-called "living wills" of the Too-Big-To-Fail banks, it appears Elizabeth Warren's tirade struck home. As WSJ reports, in a sweeping rebuke to Wall Street, U.S. regulators said 11 of the nation's biggest banks haven't demonstrated they can collapse without causing broad, damaging economic repercussions and ordered them to show "significant" progress by July 2015. Of course, the whole 'living will' concept is a self-referential joke, but we leave it to Thomas Hoenig to sum it up: "the plans provide no credible or clear path through bankruptcy that doesn't require unrealistic assumptions and direct or indirect public support." In other words, taxpayers are still on the hook.

In other words, the Fed finally figured out something that is so obvious, even five year olds were well aware: namely that banks fading into darkness, by way of living wills, is sheer idiocy.

Via The Wall Street Journal,

The Federal Reserve and the Federal Deposit Insurance Corp. said bankruptcy plans submitted by big banks make "unrealistic or inadequately supported" assumptions and "fail to make, or even to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for" an orderly failure. The regulators raised the specter of slapping banks with tougher capital, leverage and other rules—and even eventually forcibly breaking them up—absent significant progress to address the shortcomings.


The findings applied to 11 banks with assets greater than $250 billion, all of which will get letters detailing shortcomings in their so-called "living wills." The firms have until July 1, 2015 to file significantly improved plans or face consequences such as higher capital requirements, borrowing limits, or potentially an order to restructure their firm.


"Despite the thousands of pages of material these firms submitted, the plans provide no credible or clear path through bankruptcy that doesn't require unrealistic assumptions and direct or indirect public support," said Thomas Hoenig, the No. 2 official at the FDIC, in a statement.

So how did we know? Because as the charts below show, just the top 4 US banks hold $213 trillion in derivatives, 92% of the total $230 trillion, something which no living will in this world, or anything else for that matter, can possibly unwind.



Then again, we would have been delighted to watch the expression on people's faces when during the reading of JPM's will it was announced that the bank bequeathed its $68 trillion in derivatives to whatever banks remained solvent in its, shall we say, turbulent wake.

Perhaps it's time to finally re-examine The Fed ownership structure.

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gcjohns1971's picture



Heads I win, Tails you lose.


Who wants in?

DoChenRollingBearing's picture

+ 100


The FED doesn't care about the taxpayers...

pods's picture

I'll take "how to get around the paltry leverage rules" for 10,000,000 Alex. Ooops, I meant 1000.  


Vampyroteuthis infernalis's picture

Too big to fail is too big to bail.

The flushing is so crushing

When all you can hear is sucking

With my monetary worth adjusting


-A very bad poet

remain calm's picture

Here come the bail ins folks, Cypress USA style. Bend over sheeple the bankers with Yellens urging are about to stick it in your keester one more time. Enjoy.

NoDebt's picture

"something which no living will in this world, or anything else for that matter, can possibly unwind."

And that's all you need to know.  Even if the banks had a desire to do this to the best of their ability (they don't), it's an impossible task.  In a world built on interconnected debt and fiat money you can NOT have a major bank collapse without massive repercussions.  Period.  

0b1knob's picture

< TBTF (Too Big To Fail)

< TSTL (Too Stupid To Live)

whotookmyalias's picture

There is a reason why the founders of this country and early leaders like Andrew Jackson didn't trust bankers.  It wasn't because they were stupid or didn't have the internet or candy crush.

max2205's picture

I am sure 8 fucking years and ZIRP is not long enough to 'fix' the banks.

They need more time to steal from America

IANAE's picture

Despite what is being required by regulation or served up by banks, Living Wills should stipulate a liquidation/run-off basis of accounting and balance sheet management.

That means true matching of assets and liabilities (eliminating the short-funding approach) and more reasonable, supported, accruals for ALLL and CDS (both of which are arguably insurance-type undertakings) making the pnl much less attractive.

El Vaquero's picture

It is worth noting that Citi, JPM and BofA have these things stuffed into their FDIC insured deposit taking subsidiaries.  Even if congress and/or regulators wanted to do something about this, they can hold the entire financial system and taxpayers hostage.  


Roll the mothafucking guillotines. 

Groundhog Day's picture

They can only hold you hostage for the amount you keep in their banks.  thats why people buy gold and silver and only keep what they need to write checks and pay cc bills.  then they can't hold you hostaage

Whootie_who's picture

Holding you hostage with the force of the government is how it is done, the Government cannot only take you, and everything you "own" (including your life) but they can also take everything you will ever have and since all taxation is slavery... guess what we are? Wage slaves are the easiest but as long as you need money you will need the governments money and of course their permision/ tithe

Rigger's picture

Guillotine s are a barbarous relic. I plan on having several of these built by the time the masses want heads to roll...




The only hiccup is funding it. Not sure whethere to crowd fund it or roll it into a sexy IPO so I can have the pleasure of whispering 'You funded this' into Dimon's ear as it fires up. Please advise.

Oldwood's picture

Sure they care, just like a farmer cares about his chickens.

Eyeroller's picture

True that.  Yellen doesn't want any video tapes of her exchange with LIE-AWATHA being shown over and over again once the SHTF. 

I'm convinced that the Ponzi Munchkin and her crew are fervently praying for a Black Swan so they can deflect blame from themselves when their house of cards falls.

DeadFred's picture

Obama is trying hard to push Russia into being a black swan but so far no luck. Who are they kidding by thinking they have until July 2015 before this mother blows? Try harder Obama, more red lines at least.

TeethVillage88s's picture

$129.6 Trillion in Swap Derivatives for the Top 4 Banks.

Wow, in 2008 there was a big Credit Crunch... something about Swaps with BoA & AIG... and global bank linkages!

Punters! Fraudsters! Racketeering! US Title 18 of US Code, Criminal Behavior & Crimes.

Oldwood's picture

Its all about too big to fail. They may hold the bulk of the risk but also control a significant chunk of the assets. Nobody wants to see them burning down the house.

Everybodys All American's picture

1. Break up the big banks. All of them. As an example JP Morgan Chase could easily be broken up to at least five fairly large banks. This should have been done under Dodd Frank but they were all too busy sucking off banksters. This would actually create jobs something even Obama could get behind if he had any sense of doing the right thing.

2 Outlaw derivatives and again this should have already been done under Dodd Frank but no Obama and the rest of the democrats in charge were too busy living off those bankster donations. Too be fair so have all the Rhinos.

3. Outlaw prop trading and again this was supposed to have been done already under Dodd Frank and yet here we are still seeing prop trading from banks taking large postions with bank deposits at risk.

4. End the Federal Reserve and replace it with a gold / silver standard backed dollar. All Federal Reserve assets and liabilities would be dispersed among all member banks equally.


Add your own solutions or knock mine. I'm sick of this subject and I'm sick of people not thinking for the long term good of this country.

JimS's picture

I like your first 3 items. The 4th one is partly correct, as we need to end the banker-owned Federal Reserve. Read Stephen A. Zarlenga's "The Lost Science Of Money" and you'll understand the issues of any "money" tied to any commodity. This book will open your eyes to the true definition of money, and why the World's financial system is rotten to it's basic core.

TeethVillage88s's picture

First analysis:

- 2003 the Derivatives took off
- 2005 4th QTR was the top for housing
- 2007 there was no obvious pause indicating that it was not just housing bubble...as we can see it was a Swaps Bubble and many financial products were part of the bubble


1) Banks don't invest in Recession or Economic Weakness... You get a Choice either Currency Controls OR Public Banking and Recognition of Public Commons including Public Utilities to provide low cost energy, water, gasoline, and removal of some aspects of speculation in commodities, money & credit is a public Utility also

2) Population is growing, but number of self employed & small businesses are in long decline... and even the number of banks are in long decline... you get a choice simplify banking rules including Standardized Financial Instruments and an End to 90% of Private Banking, increase Fed Prime Lending Rates, create separations in different kind of banking, and fully fund FDIC OR See your monopoly as Federal Reserve Dealers and main customers for the Federal Government come to an End

3) Foreign Direct Investment in the USA is greater than Private Domestic Investment... this means US Banks & Corporations are not Patriotic and not Doing what they should be doing in the US Economy, we have Capital Flight, Brain Drain from Industry, Few National Stock Piles for Economic Shocks, Capital Stagnation, Mal-Investment, Large Amounts of Capital flowing to Speculation or paper trades... US Banking system is not working in a way that serves with integrity... So you have a choice TBTF Banks will be broken up into 8 Separate smaller Banks under Anti-Trust type Actions OR We will declare Money & Credit a public Utility which is the right of every US Citizen and we will Close Down the Federal Reserve banking system and begin Treasury Open Market Activities and student loan lending.

TheReplacement's picture

I will play with you by those rules.

ejmoosa's picture

What a waste of time and money.  


The banks have been asked to do the impossible and the Fed knows it.


And the majority of the risks originate with the actions of the Fed.


I want to see the Fed's plan for eliminating the systemic risk they have created, and I'd like to see it yesterday.  They cannot believe they are the solution to what ails us can they?  Really?



Killer the Buzzard's picture

DING DING DING. Bingo.  Congress repeals Glass-Steagall and the govt. complains that banks are too big to fail?!?!  What a joke.

Whootie_who's picture

2008 crisis .. Banks to big to fail? Solution Make the banks Bigger .. Say what?

q99x2's picture

Dude the FED is the banks and Brussels, 2 queens and 85 other scumbags.

Arrest them. Somebody call the police.

Oldwood's picture

They sign the cops pay checks, got it?

RaceToTheBottom's picture

Just threaten to Nationalize them.  That is the only way to get them to take this crap seriously.....

They are just stupid enough to require pointing out that Nationalized industries don't require CEOs who make 20 million a year too.


Oldwood's picture

Sure, we want the same ideological dumb asses running our corporations, just like they run our government. I'm sure there would be no corruption then! 20 million is pikers pay compared to the graft government can procure.

Bemused Observer's picture

Well, that is why it wouldn't work. But it IS what should have been done in 2008. Those banks should have been nationalized, management fired and replaced, then break up, audit and unwind the fuckers' messes, with the goal of returning them to private practice, so to speak, once they were on solid ground again.
But like you said, it would never work with the cast of characters we have.

Oldwood's picture

What we actually saw was a lot of smaller banks being told they were not in compliance with the then "currently accepted banking rules" and liquidated, their assets sold on the cheap to friends of Obama and the toxic shit left to us taxpayers to cover. What makes you think what actually happened is not effectively nationalization? These banks are living precisely as the rules have been dictated by government. The money these thieves have made off with personally is but a tiny portion of the actual losses foised upon the tax payers. I don't want the government running anything. Its bad enough to be robbed by these cocksuckers without the force of law behind it.

lotsoffun's picture

oldwood - correct.  the sucked up all the local banks.  and having a face at a bank that might be accountable to the community was what something as tear jerking stupid as 'it's a wonderful life' was about.  human factor and accountability to the community.

and amongst all the shit heads that are still around, and i know people disagree with me, but sheila bair at fdic made a small attempt, then checked out before she was completely covered with it.


RaceToTheBottom's picture

I was comenting about the threat of nationalization, but it has become so onesided, that Nationalization is the only solution.  Not for the US Government to run them.  No even they are not that stupid.  

Just break them up into regional entities and separate the IBankstering from their original Bank roles.

They can still compete against worldwide banks by having agreements and relationships....


Dr. Venkman's picture

Franklin Raines disagrees with this statement.

slightlyskeptical's picture

Fannie never should have been a private company in the first place. The only method where it would have made sense is if they were limited to administrative functions and profits turned over to Treasury. If anything todays technology should be able to hold everyone accountable. There just has to be the will. Ross Perot, where the hell are you?

Blankenstein's picture

They should never been allowed to have an implicit government backing. 

waterhorse's picture

Nationalize the systemically dangerous institutions and put Prof. Bill Black in charge. 

TheInfoman's picture

Nationalize them under who's control?  Certainly not the greedy gang in Washington.  

Jethro's picture

Can you imagine the banking system being run with the efficiency of the DMV?

lotsoffun's picture

the dmv is only a penalty for somebody that has to show up to work.  otherwise, i'm on my obama phone, gots me some obama care and on the way home, my ebt card whips out and gets me some dinner.  i might be missing out on a few bucks not showing up for paid jury duty, but that's ok.  i gots me all the time in the world. 

why youse always in such a rush?  playoffs are over, nothing to watch on t.v.

see how it works?  just need to be sure the community organizer can get them all out to vote.



Everybodys All American's picture

You do not have to nationalize any of them but what you have to do is split them up. These banks are monopolies much like the telephone companies were before they were taken apart. Believe it or not all the banks would be much more manageable as smaller entities and at the same time jobs would be created because there would be redundancy created instead of eliminated. At the end of this would be banks that if they failed would not be anything more than a normal bankruptcy procedure. Dodd Frank was supposed to have solved this and they didn't. Having a "disaster plan" once a failure occurs to unwind them is simply a fraud that the Fed and banking community has decided you'll believe solved the problem. It doesn't and once again we'll find during the next crisis.

ThroxxOfVron's picture

They WERE nationalized with TARP.  The Government sold them back their stolen goods to keep the deficit spending debt ponzi running and the Bankers did what they always have: paid with counterfeited credits!

Muh Raf's picture

it's just the blind leading the blind, communally they're all out of bullets and ideas, the only way is down. Only question is when, not if.

Dr. Engali's picture

These people are idiots. With 750 trillion and growing derivatives there is no way they can unwind any major bank in a bankruptcy situation. That is why BofA transferred 53 trillion in derivatives over to the bank holding side. They know regardless of what is said that the tax payer is on the hook.


Winston Churchill's picture

Hope that was a joke.They are too big to save now.

You actually think ten times world gdp can be bailed out by taxpayers.

Beg to differ there Doc.

Thats one poison pill thats too big to swallow.

El Vaquero's picture

But they're going to try to cram it down our throats anyway.  

Winston Churchill's picture

Better have a big funnel. Will they sell our livers for foie gras after ?

Dr. Engali's picture

Marinated in red wine, lightly seasoned, served over a bed of rice with gravy. Add a side of asparagus and a garlic roll for dipping.