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FDIC Approves ‘Living Wills’ Rule for Largest Bank Failures

FDIC Approves on ‘Living Wills’
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. Photographer: Jin Lee/Bloomberg

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.

The Federal Deposit Insurance Corp. board voted unanimously today to release a joint final rule laying out what the largest and most complex financial firms must include in so-called living wills they’re required to file. The panel also approved contingency planning guidelines for insured banks.

“The approval of these two rules marks an important turning point in the FDIC’s implementation of its systemic resolution responsibilities under the Dodd-Frank Act,” acting chairman Martin J. Gruenberg said before the votes at an FDIC meeting in Washington. The Federal Reserve is still required to approve the living-wills rule before it can become final.

Congress, in the Dodd-Frank Act, expanded regulators’ authority to seize and unwind lenders in response to the market tumult that followed the September 2008 bankruptcy of Lehman Brothers Holdings Inc. The new rules are designed to eliminate the need for bailouts by giving the FDIC power to liquidate large firms whose failure could threaten the financial system.

“The events of 2008 clearly demonstrated that complacency regarding resolution planning is not a strategy,” James Wigand, the director of the FDIC’s Office of Complex Financial Institutions, said during the meeting.

Banks with at least $50 billion in assets will have to file plans, as will any firm designated as systemically important by the Financial Stability Oversight Council. Currently there are 124 firms who are covered by the rule.


Regulators are requiring financial firms to file plans that are developed under the context of the bankruptcy code, with each designed to give a blueprint for how a firm could be taken apart. Subsidiaries with critical operations or core functions would also have to be addressed in resolution plans, a senior FDIC official said before today’s meeting.

The final rule changes the filing timeline from an April draft proposal released by the FDIC and Fed, moving toward a tiered phase-in based on the total of non-bank assets held by firms. Companies with more than $250 billion in non-bank assets would be required to file the plans by July 1, 2012. Firms with non-bank assets between $100 billion and $250 billion would be required to file by July 1, 2013, and all other firms would be required to submit plans by December 2013.

Comment Letters

The proposal drew more than 15 comment letters from banks including Wells Fargo & Co., PNC Financial Services Group Inc. and Banco Santander SA. Banking trade groups including the Securities Industry and Financial Markets Association and the British and Japanese banking associations also weighed in, seeking clarity on rules, and assurances of confidentiality for proprietary information.

In shaping the proposal, the FDIC, Fed and Federal Reserve Bank of New York also held a May meeting with more than 45 lawyers and executives from the banks that are forced by law to comply, including Goldman Sachs Group Inc. and Bank of America Corp., according to a meeting disclosure on the FDIC website.

The agency also approved unanimously a separate rule dictating resolution plans for FDIC-insured banks with more than $50 billion in assets. Those plans, which would be filed concurrently with the resolution plans required by Dodd-Frank, would be filed with the FDIC.

The rule, which the agency began drafting before the completion of the Dodd-Frank Act, would apply to 37 banks and thrifts, according to a senior FDIC official. Thirty four of those firms would be required to file resolution plans with the Fed because of the size of their parent company.

The rule would have an effective date of Jan. 1, 2012, and would be subject to a 60-day public comment period.

‘Just Beginning’

“The real hard work is just beginning,” said Thomas Curry, an FDIC board member nominated by President Barack Obama to serve as comptroller of the currency. “In terms of the actual development and review of the respective resolution plans, I think it’s critically important that the agencies exercise substantial judgment and review these plans in a thorough and balanced manner.”

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