Some of the biggest banks in the country are preparing to unveil blueprints that regulators can use in the event that one of these too-big-to-fail institutions actually meets its demise.
On Friday, JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley are among nine banks that will submit outlines for how regulators could effectively guide these institutions through bankruptcy or liquidation. The Federal Reserve and the Federal Deposit Insurance Corp. will review the plans, which are known as living wills, to determine how hazardous their current structures are to the economy and whether the proposed plans provide realistic resolutions for worst-case scenarios.
The balance sheets at big banks have become serious stressors for regulators who worry about the potential of another financial crisis. Requiring these living wills is the government's way of protecting the economy from what would be very intense aftershocks following the failure of a banking giant.
What do these wills mean for you? If the process is successful, it means your money will be safer. If you have accounts at one of these institutions, your bank may begin focusing more on traditional banking services like deposits and loans instead of riskier trading activities. By putting these banks under a microscope, this initiative is designed to limit stories such as the recent $2 billion loss at JPMorgan.
The living wills will provide some much-needed guidance for overseeing the banking industry, but they won't be simple documents for anyone involved in writing or reviewing them. David Henry and Dave Clarke at Reuters report that the plans could reach lengths of 4,000 pages. While the five biggest banks have the earliest deadlines for submission, there will eventually be 124 institutions that will be responsible for drafting these plans. That's a lot of reading material -- almost a half-million pages worth of it.
What do you think of the requirement to write living wills? Will it truly make the banking industry safer? Or are too-big-to-fail institutions simply too-big-to-understand?