Regulators Set to Reject Some Big Banks' ‘Living Wills'

The move, which could come as soon as this week, would raise the prospect of higher capital requirements or other regulatory sanctions for some of the institutions, and call into question whether the firms remain "too big to fail" without a taxpayer bailout.

At least half of the eight American banks labeled "systemically important" by global regulators are expected to receive a harsh verdict on their "living wills" that they were required to submit under rules crafted since the financial crisis aimed at preventing another bank bailout, these people said.

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The adverse findings would mean J.P. Morgan and other firms will have to rewrite their bankruptcy strategies to address issues regulators have identified, or face sanctions, such as being required to hold higher levels of capital, which restricts borrowing and protects against losses--but can also eat into profitability. If they fail to submit credible strategies repeatedly over a period of years, regulators could force them to divest certain assets.

In addition to J.P. Morgan, regulators have significant concerns about the bankruptcy strategies of the two so-called trust banks in the group: Bank of New York Mellon Corp. and State Street Corp., according to people familiar with the matter. Regulators have also been considering whether Bank of America Corp. should receive an adverse verdict, these people said.