FDIC Approves Rule Requiring Big Banks To Submit 'Living Will'

WASHINGTON -- The largest banks must show how they would break up their assets if they were in danger of failing, under a rule approved Tuesday.

The Federal Deposit Insurance Corp. voted to require banks with $50 billion or more in assets to submit so-called living wills. Seven banks with more than $250 billion in assets will have to show their plans by July. The other 30 affected by the rule have until 2013.

The FDIC also proposed a separate rule that would require banks with more than $10 billion in assets to conduct annual stress tests.

The tests show how each bank is positioned to handle worsening economic conditions, such as increasing unemployment and falling home prices. The regulator put the rule out for public comment and is expected to finalize it by July. It will affect roughly 190 banks.

Both rules were mandated under the 2010 financial overhaul.

By requiring banks to have living wills, the government is trying to reduce the need for another Wall Street bailout like the one that took place during the 2008 financial crisis. The 37 banks affected by the rule hold roughly $4.1 trillion in insured deposits, or about 61 percent of U.S. insured deposits as of Sept. 30, 2011.

The largest include JPMorgan Chase Bank, Bank of America, Citibank, Wells Fargo Bank, U.S. Bank, PNC Bank and Bank of New York Mellon.

Annual stress tests help the government monitor the financial strength of banks. The 19 largest U.S. banks already undergo annual stress tests, which are conducted by the Federal Reserve. The proposed stress tests would be in addition to those.

Under the proposal, the banks would be required to submit reports on the results of their stress tests to regulators and to publish a summary of the results.

The results show whether banks have enough cash and cash-like securities on their balance sheets to offset potential losses from risky loans. And they also show whether a bank is in position to withstand an economic downturn.

Richard Cordray, the director of the Consumer Financial Protection Bureau, attended the meeting as a member of the FDIC board for the first time.

President Barack Obama appointed Cordray earlier this month, despite Republican opposition. Obama put him in charge without Senate approval through a recess appointment.

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Comments

[dukeitout]

07:30 PM on 01/17/2012

We don't need new laws for the banks as much as we do enforcement of existing laws by existing agencies.

[LuLou Murder]

12:14 AM on 01/18/2012

Reinstate Glass-Steagall for one.

[Libertardo]

05:14 PM on 01/17/2012

This is a democrat big brother takeover of American enterprise. If a politician/bureaucrat decide that the existence of your company threatens their own political welfare, they will get a crony judge to enforce these living wills for no reason at all. Why are we allowing a government takeover of private enterprise.

There was no such thing as too big to fail, until crony politicians decided to bailout their friends and blame it on too big to fail. Now they've proposed a solution to the problem they created with their crony votes.

[sindurrella]

07:20 PM on 01/17/2012

if the banks don't want their deposits backed by the FDIC, they probably don't have to abide by this rule. If they're financially stressed, I'm sure Bain would be more than happy to swoop down and take it over.... and, just to sweeten the pot, they'd probably qualify for some sort of government funded corporate welfare ..

[Barbarian At The Gate]

08:29 AM on 01/18/2012

F & F. Excellent rebuttal.

The banks benefit by having the client's deposits insured by FDIC. Let the banks who don't want to create a living will lose their FDIC status. They won't last long since their clients, if smart, will move their accounts to banks that are backed by the FDIC.

[webwzrd]

04:43 PM on 01/17/2012

While I don't criticize the move, I get the feeling this is just window dressing.

[Italianamerican]

04:03 PM on 01/17/2012

Welcome to the Obma'sBig bROTHER ENVOTCEMENT.

[webwzrd]

04:42 PM on 01/17/2012

You should be welcomed into a typing class.

[unique]

03:12 PM on 01/17/2012

There should never be another bail out of any Banks.
NO Wall Street bail out. NO Insurance Companies
bail out. NO Large Companies bail out.
If the Government is going to bail out anyone it needs
to be THE AMERICAN PEOPLE, so they can get
their money back. NO more Big Bonuses.

[dcol]

02:19 PM on 01/17/2012

If corporations want peoplehood, then a "will" should be required since there are many beneficiaries to take care off in case they die.

[Kenz300]

01:42 PM on 01/17/2012

The too big to fail banks need to be broken up into 2 or 3 smaller banks.

[Libertardo]

05:18 PM on 01/17/2012

How about when the big brother government decides that your bank account is too big, and should be broken up into 2 or 3 bank accounts with you remaining in control of only one of them.

What happened to the protection of private property in this country? Bank shares are not your property, you have absolutely no say in what happens to them.

[Kenz300]

10:35 AM on 01/18/2012

and they have no right to be bailed out.

[TheAntiOkie]

01:33 PM on 01/17/2012

They need to ELIMINATE - not reduce the need - for another Wall Street bailout. Nothing less is worthy of the citizens of this country, Congress.

[nothingchanges]

01:22 PM on 01/17/2012

I note that they are not required to submit a "living trust"

Trust is something no longer associated with the Banking industry, or the regulators that "overlook" them.

[hrc04]

01:21 PM on 01/17/2012

Wait, if corporations are people, isn't this a sort of death panel?

[OhManOhMan]

01:19 PM on 01/17/2012

FDIC is doing a good deed so far

then why FIDC is paying Banks 60% for foreclosed back end and 40% short sale ?