Federal Regulators Continue Push to Improve Bankruptcy Planning for Large Banks

Federal regulators are finding fewer critical issues in the bankruptcy plans of major financial firms, signaling progress in safeguarding the U.S. economy against the collapse of large banks. According to a report released by the U.S. Government Accountability Office (GAO) on July 21, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) have continued efforts to strengthen how major institutions prepare for potential failure, though no substantial legislative changes have been made since 2020.

The GAO’s review focuses on how the FDIC and Federal Reserve monitor and guide the development of resolution plans—commonly referred to as “living wills”—for large financial companies. These plans are designed to ensure that firms can be liquidated or reorganized in an orderly manner under the Bankruptcy Code, without threatening broader financial stability. While the Dodd-Frank Act established these requirements following the 2007–2009 financial crisis, oversight has matured significantly in recent years. Regulators now categorize plan issues as either “deficiencies,” which are serious enough to undermine a firm’s ability to execute the plan, or “shortcomings,” which are less severe. The GAO noted a steady decline in both categories over the past decade.

FDIC has also been developing its own resolution authority through the Orderly Liquidation Authority, an alternative to traditional bankruptcy designed for situations where systemic risk is present. This program has seen continued development in response to a 2023 internal audit and as part of the agency’s long-term strategic goals. The GAO report confirmed that 79 financial companies are currently subject to resolution plan filing requirements, and it examined a sample of ten institutions with historically high numbers of identified issues.

While no significant changes have been made to the bankruptcy law or Orderly Liquidation Authority framework since the last GAO report in 2020, the existing mechanisms are being refined and actively used. For the public, these developments mean greater stability in the financial system and a reduced likelihood that taxpayer funds will be needed to support failing institutions. Residents with retirement accounts, mortgages, or small business loans tied to large banks benefit from regulators’ continued oversight, as it lowers the chances of economic disruption due to a major financial firm’s collapse.

Article by multiple contributors, based upon information from U.S. Government Accountability Office press release

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