US regulators had to correct themselves because of a tehnical error on Friday, just days after telling big banks to revise perceived defects in their bankruptcy plans.
The U.S. Federal Reserve and the Federal Deposit Insurance Corporation said they had reissued their letter to Morgan Stanley about the bank's "living will," a bankruptcy plan that would not rely on federal aid, reports The Economic Times.
"The feedback letter for Morgan Stanley has been re-issued due to a drafting error that labeled a weakness as a deficiency, rather than a shortcoming," said Federal Reserve spokesman Eric Kollig. "The change has no impact on the firm or the required remediation."
Big banks are required under the Dodd-Frank Wall Street reform legislation, passed in the wake of the 2007-2009 financial crisis, to periodically file a living will. During the crisis, the U.S. government spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S. economy, according to Reuters.
On Wednesday, the two regulatory bodies issued joint determinations flunking the living wills of five out of eight largest US banks. A joint determination can start a regulatory chain that could end in a bank having to divest its assets, effectively breaking it apart.
Morgan Stanley did not receive a joint determination but still the Federal Reserve said its plan was not credible, requiring the bank to make changes to address the deficiences and shortcomings the regulators identified.
The Wall Street Journal wrote that the corrected letter removed a sentence saying the Fed decided part of Morgan Stanley's bankruptcy plan contained a "deficiency," a term regulators use when they believe a living will violates the legal standard in the 2010 Dodd-Frank law.
The development is expected to raise confusion among bankers since earlier in the week regulators criticized Wells Fargo for inaccuracies in its living will. Regulators said they found "material errors" in the 2015 bankruptcy plan of the bank that the firm later corrected.
Due to this and other reasons, the Fed and FDIC concluded the bank did not meet the Dodd-Frank standard. Wells Fargo said it is addressing the matter.
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