STT State Street Corporation

By Rachel Louise Ensign 

Regulators told State Street Corp. that it needs to make significant revisions to its plan detailing how it would go through a potential bankruptcy.

The Federal Reserve and the Federal Deposit Insurance Corp. said Wednesday that the bank's so-called living will doesn't meet the requirements of the 2010 Dodd-Frank law, a rebuke that could eventually impose higher capital requirements or other regulatory sanctions on the bank.

Regulators said State Street's contingency plan had improved from its prior plans, but still detailed a number of reasons the plan was "not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code."

The regulators' review is the latest chapter in a continuing discussion since the 2008 financial crisis about whether the largest banks add to overall financial instability or help contain it in times of economic stress.

"We are committed to addressing the areas outlined by the Federal Reserve and FDIC," a State Street spokeswoman said. "Given our strong financial position and capital ratios, we remain confident in the strength and resiliency of our business."

State Street specializes in custodial services and investment management, which are businesses that involve trillions of dollars. It is considered to be among one of the largest, more complex institutions overseen by the Fed, subjecting it to some of the same stringent regulatory rules as banks like J.P. Morgan Chase & Co. and Bank of America Corp.

State Street's plan, which it submitted last summer, detailed what it would do in a worst-case scenario to collapse without needing taxpayer assistance. The Boston bank said that in an emergency, it would try to keep operations at certain lines of its business from being interrupted by deploying a so-called "single point of entry" bankruptcy strategy. Under the scenario, a bank's parent company would enter bankruptcy and the firm's units would be recapitalized.

But the regulators found deficiencies in the lender's plans involving shared services and simplifying its legal-entity structure. They also had issues with the methodology used in some parts of the submission.

The regulators said the firm has until October to present plans regulators find acceptable or the agencies could impose higher capital requirements, restrictions on growth or activities, or other sanctions.

Despite the negative assessment, State Street shares rose more than 2% in morning trading after J.P. Morgan released earnings that beat expectations.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

(END) Dow Jones Newswires

April 13, 2016 11:40 ET (15:40 GMT)

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