FDIC Promises Big U.S. Banks a Helping Hand on Next Living Wills

Big banks’ pleas for more how-to help on their plans to dismantle themselves in a failure will be answered with additional guidance from the Federal Deposit Insurance Corp., said Chairman Martin Gruenberg.

Banks including JPMorgan Chase & Co. and Bank of America Corp. face filing a second round of so-called living wills, and the industry has been waiting for more feedback on the plans they submitted last year. Gruenberg said in an interview today that his agency is planning to send those firms further guidance to prepare for the July 1 deadline, when stakes will be higher than they were the first time.

The chairman said he’s heard from the big banks that they want more information and he still needs to hash out final details with the Federal Reserve on what that advice will look like. In this second round, Gruenberg confirmed the 11 banks in the top asset tier won’t have the safety net they had last year when they were told their plans wouldn’t be rejected if they weren’t credible.

The 2010 Dodd-Frank Act overhaul of the U.S. financial system required banks make detailed plans for their own demise and file those plans with banking regulators. While the plans are meant to take the firms through court-led bankruptcies, the FDIC was also given authority to handle failing bank holding companies that can’t be safely dismantled in the courts.

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.

“The institutions are frustrated,” said John Corston, a Deloitte & Touche LLP director who works on living wills. Because banks are “not totally clear how they did” in the opening round, he said he’d be surprised if the next plans --due in less than four months -- were subjected to significantly more strenuous standards.

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