FDIC Wants “Living Will” Disaster Plans from Banks

by Paul Springer

In a compelling sign of the times, U.S. regulators are forcing big banks to envision their own demise in “living wills” that outline financial emergency plans. And things always go according to plan.

“U.S. regulators approved two sets of guidelines that banks including Citigroup Inc. and JPMorgan Chase & Co. will have to follow in drafting plans to protect the broader economy in the event of their own collapse,” Bloomberg says.

The contingency planning requirement also needs Fed approval before it can go into effect.

The New York Times reports the new plans will require a lot of oversight from regulators, all with an eye to avoiding another too-big-to-fail bailout:

The documents will open a window into the financial industry’s investments, trading counterparties and concentration of risk. The firms also must share what amounts to a Plan B — details for how the company can be wound down through the bankruptcy process  . . . Armed with the contingency plans, regulators say they can prevent a repeat of the chaotic Lehman Brothers bankruptcy, which still lingers on today.

So the “living wills” appear to require a lot more than just contingency planning. Regulators will apparently be able to peek in and admonish bankers for stocking the larder with toxic RMBS securities, sub-prime loan packages, Greek debt, what have you.

Alvarez & Marshall managing director Paul Cantwell told The Financial Times that the wills sound like hands-on regulation:

Companies pursuing activities that may not be easily wound down in the event of failure could be forced to either abandon those business lines or restructure them to make their failure much easier for regulators to handle, he said.

That’s a great idea: plan your failure so it’s easier for regulators to clean up. Really, the prospect of close collaboration between bankers and regulators is amazing.

Combine the iron-fisted oversight that ignored the Madoff mess for a decade with the kind of investing insight that destroyed Lehman Brothers and scorched any number of other banks . . . and maybe we should all be planning for an economic nuclear winter scenario.

Related posts:

  1. And Lehman’s Lawyers Shall Inherit the Earth…Word is out that the lawyers, restructuring experts, forensic accountants and other assorted life forms perched upon the...
  2. Gasparino Says Fuld Walking on SunshineThe mushroom cloud rising from the implosion of Lehman Brothers isn’t casting a shadow on disgraced Lehman head...
  3. Should Lehman Still Be in Business?Hindsight is a fickle mistress, and it does the thousands of Lehman employees and shareholders little good now...
  4. Financial Reform: Banks Lose but Who Gains?The groundbreaking financial reform bill is to reach the desk of President Obama by the Fourth of July...
  5. Art Profit Potential in Aftermath of Lehman DemiseAbout two years since the failure of Lehman Brothers, profit opportunities have survived; this time, extending to the...

Short URL: http://www.traderdaily.com/?p=15115

You must be logged in to post a comment Login

Receive TraderDaily by Email

- Yes! Sign me up for TraderDaily by Email
First Name:
Last Name:

Twitter Facebook Linked In RSS Feed

© 2016 TraderDaily. All Rights Reserved.

Videos, Slideshows and Podcasts by Cincopa Wordpress Plugin