Fed, FDIC Clear Living Wills for JPMorgan, BofA, Citi and All Major U.S. Banks

Why It Matters

The clean grades signal that the United States’ post‑2008 resolution framework is functioning as intended, reducing the systemic risk posed by the nation’s largest banks. By removing the derivatives‑related deficiencies, regulators have cleared a key obstacle that previously limited the scale of capital returns, allowing banks to reward shareholders more freely. For the broader financial system, the approval reinforces confidence that a failing mega‑bank could be wound down in an orderly fashion, limiting contagion risk. This stability is crucial for maintaining market liquidity, especially in a period of heightened geopolitical uncertainty and volatile interest‑rate environments.

Key Takeaways

• Fed and FDIC gave clean grades to the living wills of JPMorgan, BofA, Citi and five other systemically important banks on May 22.
• Regulators found no shortcomings or deficiencies in any of the eight resolution plans.
• Derivatives‑unwinding weaknesses for four banks were declared "satisfactorily addressed" after a 2024 complaint.
• U.S. banks spent a record $33 billion on buybacks in Q1 2026, with new programs totaling $120 billion across BofA, JPMorgan and Citi.
• Clean grades remove a supervisory hurdle, enabling more aggressive dividend hikes and share‑repurchase authorizations.

Pulse Analysis

The approval of the living wills marks a subtle but meaningful shift in the regulatory‑bank dynamic. Over the past decade, banks have navigated a tightening‑then‑loosening cycle of capital rules, and the current clean grades reflect both the banks’ operational improvements and the regulators’ willingness to acknowledge progress. By resolving the derivatives‑unwinding concerns, the Fed and FDIC have effectively removed a lever that could have been used to curb excesses in capital returns, suggesting a more collaborative stance.

Historically, a “shortcoming” tag on a living will has been a red flag for investors, often prompting a dip in stock prices and a slowdown in buyback activity. The removal of that tag for four of the most‑traded banks is likely to translate into higher earnings per share as dividend payouts and repurchases increase. However, the market may also price in the risk that more aggressive capital returns could erode buffers if a stress scenario materializes.

Looking ahead, the next supervisory review in 2028 will test whether banks can sustain these expanded return programs while maintaining resilience. If the Fed and FDIC continue to grant clean grades, we could see a new baseline for shareholder expectations, potentially reshaping the competitive landscape as banks vie for investor favor through ever‑larger capital‑return initiatives.