Updated Saturday, October 25, 2014 as of 10:36 AM ET

Big Banks’ ‘Living Wills’ Get Failing Grade

(Bloomberg) -- Wall Street banks spent two years asking U.S. regulators what they should put in hypothetical bankruptcy plans to prove they aren’t “too big to fail.” The agencies broke their silence yesterday with a grade:Fail.

The Federal Reserve and Federal Deposit Insurance Corp. told 11 of the largest U.S. and foreign banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., that they botched their so-called living wills. The agencies ordered the banks to simplify their legal structures and revise some practices to make sure they can collapse without damaging the wider financial system.

“It’s unfortunate that there have been public findings before there has been any substantive communications with the banks,” said Rodgin Cohen, senior chairman at Sullivan & Cromwell LLP, which has several of the affected banks as clients.

The living-wills exercise was a key check on large banks written into the Dodd-Frank Act, a regulatory overhaul prompted by the 2008 financial crisis. Lehman Brothers Holdings Inc. provided the horror story for what happens when big, complex financial firms land in bankruptcy court. So the regulators yesterday directed the banks to take immediate action to make their holding companies easier to dismantle before their next round of annual filings in 2015.

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