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Banks file living wills

By Marcie Geffner · Bankrate.com
Thursday, July 5, 2012
Posted: 5 pm ET

People prepare living wills to set down pre-need instructions for dire medical situations in which they can't speak for themselves.

Now nine of the largest global banks, including five U.S.-based banks, also have living wills, officially known as resolution plans, to guide regulators if the worst case scenario -- a bank failure -- happens.

The plans will be reviewed by the Federal Reserve and Federal Deposit Insurance Corp. to assess their likelihood and reasonableness. The idea is to aid regulators in the event of an economic crisis that might topple one of these giant banks, sometimes described as "too big to fail."

The first banks to file their plans were selected because they generally have more than $250 billion in nonbank assets. The list: Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS.

The full plans, believed to be thousands of pages, are being kept confidential, apart from so-called public sections posted on the federal agencies' websites late Tuesday.

The public sections vary in length from about a dozen to more than 40 pages. In each, the substantial bulk of the information describes each bank's organizational structure, material businesses, interconnections and interdependencies with other banking entities and management information systems.

Also included were brief descriptions of actions that could be taken should the bank fail. Here's a sampling.

  • Barclays: "Material entities, core business lines and critical operations not transferred pre-proceeding or shortly after the commencement of an insolvency proceeding would be wound down in an orderly fashion designed to mitigate systemic risk ... Potential purchasers would include creditworthy private sector purchasers with sufficient capital and include, but are not limited to, national or international financial institutions and private equity funds. In the absence of a single purchaser, multiple acquirers could purchase certain material entities through stock acquisition and/or the purchase of certain assets which may include assumption of associated liabilities."
  • Bank of America: "The Plan contemplates a resolution strategy in which Bank of America's U.S. bank material  entities ("MEs"), under a hypothetical failure scenario, would be resolved  by placing them into FDIC receiverships. Certain assets and liabilities would be transferred to a bridge bank that would, subject to certain assumptions, emerge from resolution as a viable going concern. Bank of America's other MEs would be wound down in an orderly manner, subject to certain assumptions."
  • JPMorgan Chase: "The Resolution Plan provides that, in order to achieve the significant benefits of resolution through recapitalization, the Firm's lead bank subsidiary, JPMorgan Chase Bank, N.A. would be recapitalized, either without initiating one or more (Federal Deposit Insurance) Act receiverships, or if necessary, by utilizing the FDIC's traditional resolution powers in receivership proceedings."

Bartlett Naylor, financial policy advocate at Public Citizen, a nonprofit organization in Washington, D.C., urged regulators to reject any plan they find to be inadequate.

"After sucking trillions of dollars from taxpayers in bailouts and subsidies as well as wrecking the world economy, America's largest banks should offer more in their living wills than excerpts from their shareholder reports and self-promoting bromides about their safety," Naylor said in a statement. "If the shallow detail-thin public plans are any indication as to what regulators will find in the plans submitted to them, Washington should return them to the banks marked 'F.'"

A total of 124 banks are expected to submit plans as the program, required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, evolves.

Follow me on Twitter: @marciegeff

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