The regulators recent rejection of big U.S. banks’ plans for resolving themselves in the event of failure, known as “living wills,” ratchets up the pressure on the banks to simplify their businesses, suggests Fitch Ratings.

In a new report, the rating agency says that the U.S. Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC) rejected the banks’ proposed living wills for various reasons, including overly complex legal structures, inflexible termination rights in contracts, inadequate continuity plans, and a lack of preparedness to produce timely information.

“Essentially, the regulators’ views mean that the size and opacity of these banks needs to be improved before any orderly wind-down could be achieved,” it says. “The sweeping nature of the negative feedback signals that the assumptions behind how complex, large banks are resolved, as well as their business models and organizational structures, remain under attack.”

Fitch says that it believes that the banks proposed their living wills under a presumption that their existing business models are not changing. But they will now face increased pressure to simplify their structures, it suggests.

“Banks will need to make assumptions regarding resolution more reasonable and demonstrate an ability to provide the requisite information needed for resolution. Moreover, it may prompt banks to further simplify their legal entity structure,” it says.

While these efforts could be costly, and may represent a credit negative over the short term, Fitch says that, if successful, reductions in size and complexity could be a positive for large banks.

Nevertheless, Fitch notes that the problem of banks that are “too big to fail” (TBTF) remains a tricky one. “This regulatory rebuke highlights the difficulties four years after the enactment of Dodd-Frank in solving the problem of TBTF banks,” Fitch says, noting that this is not just a U.S. issue.

“While it is difficult to say if TBTF can be solved, large banks have considerably further ground to cover in providing regulators wider abilities to sidestep taxpayer-funded situations,” it concludes.