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Secret too-big-to-fail plans

By David McMillin ·
Monday, August 13, 2012
Posted: 1 pm ET

While there's plenty of talk about the need to break up too-big-to-fail banks, it looks like regulators have been quietly ensuring the country's biggest institutions have plans to remain intact.

According to documents Reuters obtained from the Federal Reserve and the U.S. Office of the Comptroller of the Currency, five of the biggest banks in America were privately asked to submit recovery plans in 2010. Bank of America, Goldman Sachs, JPMorgan, Citigroup and Morgan Stanley all compiled plans to keep themselves from the brink of failure that include last-resort efforts such as selling off businesses and finding alternative ways to raise capital. All plans were intended to help these institutions resolve any sources of stress within three to six months.

My colleagues and I have covered resolution plans for banks, also known as living wills, but recovery plans are different. Resolution plans provide guidance for after failure, but recovery plans are designed to prevent that failure from ever happening in the first place.

The news of these plans indicates just how concerned regulators have been about the potential failure of the country's financial giants. The details, or lack thereof, surrounding the actual plans highlight that regulators are not looking to make them public knowledge. While the Fed released the requests that these banks received for plans, the actual plans are being kept confidential. According to the Reuters article, regulators have refused to release more than 5,100 pages of documentation about the specificity of the plans.

I can understand the privacy of the matter. As the nation has slowly recovered from the recent financial crisis, restoring public faith in the banking system hasn't been easy. Rumors of the possibility of failure at one of these five banking institutions could fuel a sharp drop in consumer confidence.

What do you think? Would news of your bank preparing recovery plans make you worry about the safety of your money?

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