Nine big banks prepare their ‘living wills’ for financial regulators

Federal regulators are requiring nine of the biggest banks that operate in U.S. to submit “living wills,” contingency plans that outline how the banks could be dismantled if they were to fail.

Some politicians and economists who favor stricter regulation hope that the wills — officially known as resolution plans — can help address the idea that some financial institutions are too big to fail. Others worry that the plans will be so long and complex that regulatory agencies won’t be prepared to handle them.

Reuters reports that JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are among the banks submitting plans to regulators at the Federal Reserve and the Federal Deposit Insurance Corporation. The other four are owned abroad.

With some of the most complicated balance sheets and corporate structures of any companies in the United States, the banks face a complex process of untangling their global operations. The liquidation plans are due to regulators by July 1, according to a provision in the Dodd-Frank financial reform law. Experts estimate they could be hundreds, if not thousands, of pages long.

Proponents of financial reform say the living wills could make big banks less dangerous to the economy — and the the public — in the event of another financial crisis. Amy Friend, managing director of Promontory Financial, called it them “how-to guides” for dismantling failed banks in a quick and orderly way.

“This is a way of suggesting to the marketplace that these companies are not going to be propped up,” she said. “There is this organized way to let them fail without having shocks sort of ripple through the financial system, which is what we saw during the [2008] crisis.”

Friend, who served as the chief counsel to the Senate Committee on Banking when Dodd-Frank was being drafted, said Congress wanted to better prepare itself for the “unthinkable.”

“I think what Congress is trying to say is, ‘We saw what happens when you don’t plan and we don’t want to go through that again, so let’s try something different,'” she said. “It won’t be easy, but it’s better than what we faced four years ago.”