(Source: Bloomberg BusinessWeek) – Bank of America (BAC) and Citigroup (C) stood out for all the wrong reasons in the Aug. 8 market decline. Shares of the two banks—both are among the roughly 40 U.S. institutions considered too big to fail—led the 634-point drop amid new doubts about the quality of the assets buried on their balance sheets. Investors now believe Bank of America’s net worth is only about a third of what the bank claims; for Citigroup the figure is less than half.Dodd-Frank, adopted in response to the financial convulsions of 2008, required banks to draw up so-called living wills, which describe how a failing bank could wind down its business and avoid dragging down other companies. In theory, this should mean a bank would sell pieces of its business, place others into bankruptcy, and close remaining operations. But regulators have put a deadline for writing living will guidelines on hold while they coordinate with overseas regulators. Former Federal Deposit Insurance Corp. Chairman Sheila C. Bair wanted the rules for drafting living wills in place by the end of August. That seems appropriate.

Source: Bloomberg BusinessWeek

August 11, 2011, 10:00 PM EDT

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