Wells Fargo (NYSE:WFC) Fails Bankruptcy Test in the US

There is fresh trouble at the banking and financial services holding company Wells Fargo (NYSE:WFC), as regulators in the United States have rejected their attempts to fix issues relating to the bankruptcy plan. Restrictions have been imposed on Wells Fargo as a result. This is the second time this year the bank has failed to pass regulatory tests. These tests have been in place since the financial crisis of 2008 to bring down the threat posed by big banks on the broader economy.

Wells Fargo Fails the Living Will Test

Banks that are seen as too big to fail need to have a “living will” that lets them close down without requiring public money. It is called the “living will test”, which Wells Fargo has now failed for the second time. So they cannot purchase non-bank companies or open international branches till the time the regulators are satisfied. Additional limits may also be imposed if the problems linger for too long. For instance, they might be asked to sell assets.

Wells Fargo will now have to submit another plan by March 31. It would be the third time they have to submit a proposal to address the shortcomings.

Reacting to the rejection, a bank spokesman said that they were disappointed with the decision. “We will continue to work closely with the agencies to better understand their concerns so that we can bring our resolution process in line with their expectations”. The statement further added, “We believe we will be able to address the concerns raised today in the March 2017 revised submission”.

However, the regulators are saying that the issue with Wells Fargo is not about the accounts fraud of September, it is because they are struggling to investigate the issue and contain damages. Thousands of bankers have been fired already for creating unwanted secret accounts for customers, many of whom lost money as a result.

Regulators Ask Five Banks to Submit Their Proposals

Last April, regulators in the US announced that Wells Fargo along with four other major banks will have to submit a plan to close down in such a way that there won’t be a major impact on the economy in case these banks failed. The other banks include JP Morgan Chase, Bank of New York Mellon, State Street, and the Bank of America (NYSE:BAC).

All the five banks had submitted their disaster-preparedness proposals. Only Wells Fargo (NYSE:WFC) failed to clear the living will test.