U.S. regulators fail 'living wills' at five of eight big banks (BUT ALL UNOFFICIALLY FAIL)

The move officially starts a long regulatory chain that could end with breaking up the banks. Nearly a decade after the financial crisis, it underscored how the debate about banks being "too big to fail" continues to rage in Washington and exasperate on Wall Street.

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If the five, which also included Bank of America Corp (BAC.N), State Street Corp (STT.N) and Bank of New York Mellon Corp. (BK.N), do not correct serious "deficiencies" in their plans by October, they could face stricter regulations, like higher capital requirements or limits on business activities, regulators said.

If the deficiencies persist for two years, then the banks will have to divest their assets. They have until July 2017 to address more minor "shortcomings."

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Thomas Hoenig, who was a voting member of the Federal Open Market Committee during the crisis, said the plans show that no firm is "capable of being resolved in an orderly fashion through bankruptcy."

"The goal to end 'too big to fail' and protect the American taxpayer by ending bailouts remains just that: only a goal," he said.

The three remaining large, systemically important banks, which the U.S. government considers "too big to fail," did not fare much better in their evaluations, but sidestepped potential sanctions because they were not given joint determinations.

The FDIC alone determined the plan submitted by Goldman Sachs (GS.N) was not credible, while the Federal Reserve Board on its own found Morgan Stanley's plan not credible. Citigroup's (C.N) living will did pass, but the regulators noted it had "shortcomings."