The largest U.S. banks, under pressure from regulators to simplify their organizational structures, haven’t made much progress paring subsidiaries — a sign they would still be difficult to close down in a crisis.
The top six firms’ most recent regulatory filings, obtained through the Freedom of Information Act, show little or no change in the number of units, which range from 1,300 to 3,400.
Daniel Tarullo, the Fed governor in charge of supervision and regulation, said last month the new blueprints are needed to ensure that banks can be wound down without systemic contagion.
The banks last week submitted their latest living wills — blueprints explaining how they could be resolved during a bankruptcy — to the Federal Reserve and the Federal Deposit Insurance Corp. Regulators criticized earlier versions and demanded revisions, including establishing simpler legal structures. Authorities also expressed concern that cross-ownership and lending relationships among thousands of subsidiaries will make it harder to unwind the firms if they fail, such as during a financial crisis.
JPMorgan Chase & Co., the largest U.S. bank by assets, owned or controlled about 3,400 subsidiaries in March 2014, little changed from the end of 2012, according to company filings with the Federal Reserve and data obtained from the Financial Stability Oversight Council. Morgan Stanley, the sixth largest, had 2,900 units at the end of 2013 (the most recent year with available figures), the same number as two years earlier.
Firms have said a high number of subsidiaries doesn’t tell the whole story. The banks are reorganizing relations between core units that together encompass most of their business. In an April letter to shareholders, JPMorgan chief executive officer Jamie Dimon talked about 34 units that house the bulk of the firm’s essential operations.
Each of those “has to be understood by the regulators and must have distinct intercompany agreements and a comprehensive plan in place to manage the legal entity in the event that it needs to be resolved,” Dimon said. “In addition, we are working to reduce the number of entities we have and to simplify our structure and interentity arrangements.”
Firms focusing on investment banking also have said their unit counts include hundreds of investments, which wouldn’t complicate resolution because they’re not really operating businesses.