Big Banks’ ‘Living Wills’ Promise Bankruptcy Instead of Bailouts
By Jesse Hamilton, from Bloomberg
July 3 (Bloomberg) — U.S. regulators, seeking to prevent a repeat of taxpayer-funded bailouts of the financial system, released summaries of plans for breaking up nine of the world’s largest banks in the event of an emergency.
The Federal Deposit Insurance Corp. posted the public portions of so-called living wills on its website today as required by the 2010 Dodd-Frank Act. The documents outline more detailed proposals submitted privately to regulators describing how the companies can be dismantled if they fail.
The banks required to file are JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley, Barclays PLC, Deutsche Bank AG, Credit Suisse Group AG and UBS AG.
The aim of the living wills is to give regulators a plan for shutting down complex financial firms without taxpayer bailouts or the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc.
Banks with more than $250 billion in nonbank assets were the first of an eventual 125 firms required to produce liquidation plans, which are expected to run into thousands of pages. Nonbank companies declared by U.S. regulators to be systemically important will also have to submit living wills.
The regulators are to determine whether each living will represent a “credible” path to a rapid and orderly bankruptcy. The agencies have 60 days from submission of the plans to request more information from the companies.
Dr. Pinna says:
Each day that passes we are getting glimpses into the immense “cancer” that the banking industry has become. Both in the USA and in Europe, the banking industry is involved in the most vital functions of the economy. If very large banks fail, due to mismanagement or economic distress, the entire economy may subsequently implode.
As the American and European countries are beginning to realize too much economic power has been placed in very weak hands.
Bankers and their governmental regulators are not extremely gifted people. They are generally less talented than most professionals.
Every economic disaster in history has been a total or partial result of inept bankers trying to make inappropriate profits.
This “Living Will” gimmick is probably “too little and too late.”