By Ryan Tracy And Victoria McGrane 

WASHINGTON--U.S. regulators said Wells Fargo & Co. has convinced them that the financial system would not likely be seriously damaged if the bank were to ever collapse, giving it a passing grade that ratchets up the pressure on other big banks slammed for producing unrealistic bankruptcy plans a few months ago.

The San Francisco-based lender graded better than its peers Tuesday on its plan for a theoretical bankruptcy, but it still doesn't have the top score regulators would like to see.

The bank declined to comment.

The Federal Reserve and Federal Deposit Insurance Corp. said a hypothetical bankruptcy plan submitted by Wells Fargo "provides a basis for a resolution strategy that could facilitate an orderly resolution under bankruptcy" but said the blueprint still had some shortcomings that must be addressed when the bank files a revised plan in 2015. The agencies didn't specify the shortcomings. "Resolution" is shorthand for the process of unwinding a failing firm.

The results are the latest indication that regulators favor simplicity. Though it is one of the largest bank holding companies in the U.S. by assets, Wells Fargo has a simpler structure than other conglomerate financial firms. Compared to peers like J.P. Morgan Chase & Co., Wells Fargo has a relatively small broker-dealer business and a relatively small international footprint. Much of its operations take place in its FDIC-insured banking subsidiary.

Regulators had faulted the 11 firms reviewed in August for, among other things, not doing more to establish "a rational and less complex legal structure."

Analysts said regulators appear to be pointing to Wells as an example for other firms.

"The regulators are saying...'Look more like Wells Fargo.' Wells Fargo is the reference point for the other big banks in terms of reducing the degree of complexity. It's a large bank but it is not as complex," said CLSA bank analyst Mike Mayo.

"I don't think it's an accident that the first approval came out from what is thought to be a simpler, more traditional bank," said Brian Gardner, a Washington analyst with investment bank Keefe, Bruyette & Woods Inc.

Tuesday's news added more sting to the black eye for the 11 banks whose plans were rejected this summer by showing that it is possible to satisfy regulators. Following the rebuke by regulators in August, some in the industry speculated it could be impossible to meet the requirements for a credible bankruptcy plan.

That Wells Fargo appears to have found a winning formula increases pressure on other firms to win a better result for their own plans, which will be filed in July 2015.

It is crucial for banks to have plans that regulators judge as credible, because the 2010 Dodd-Frank law gave regulators power to break up firms who continually fail to submit credible plans.

The industry has already made progress on one of the five key changes regulators said they needed to see: incorporating a "stay" or pause for early-termination rights in banks' derivatives contracts. Regulators believe such a pause is key to enabling firms to be cleanly dismantled in a future panic. Last month, 18 global banks voluntarily agreed to wait 48 hours before seeking to terminate derivatives contracts from a troubled financial institution, a deal the Fed and FDIC had been pushing the industry to accept.

International regulators also recently proposed new rules for big banks to hold more loss-absorbing capacity in order to avoid a taxpayer bailout. The Federal Reserve is expected to soon propose the U.S. version of those rules. Wells Fargo, for its part, has said it shouldn't be subject to the same loss-absorbing capacity rules as more complex firms.

At a news conference Tuesday unrelated to the Wells Fargo announcement, FDIC Chairman Martin Gruenberg said regulators are making progress in ensuring large banks aren't "too big to fail" and won't require a taxpayer bailout during a period of stress.

The recent announcements on loss-absorbing capacity and derivatives "are significant steps toward significantly improving the prospects for resolving large systemically important financial institutions without disruption to the financial system," he said.

Write to Ryan Tracy at ryan.tracy@wsj.com

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