Banks get living wills
Jeremy Hobson: In Washington today the Federal Deposit Insurance Corporation — the FDIC — will be looking into whether the nation’s biggest banks are prepared for their own demise. As part of the new financial reform law, firms that are considered key to the financial system have to write up what amounts to a “living will.”
Our senior business correspondent Bob Moon explains.
Bob Moon: Turning government regulators into banking undertakers isn’t really all that far from the pitch in those heart-tugging funeral-planning commercials. If our bank dies, can we cope?
TV advertisement: We can help you hold things together, take care of the million things that must be done and bring chaos into focus, so you can cope.
Bert Ely: The idea is, regulators will be able to come in and break the company up in such a way as to minimize market disruption.
Bert Ely is a banking industry consultant. He says Congress has mandated that key financial institutions prove they can fail without the need for a bailout. If they can’t, FDIC chief Sheila Bair told the Reuters news service:
Sheila Bair: Then they should be downsized now. There is no reason in the world why they should get some kind of special treatment and backstop that other businesses in this country don’t get.
Bert Ely is skeptical, though.
Ely: Any company directed to come up with a “living will” will come up with something that at least on paper will seem plausible. You know, whether or not it’s any good at a time of a crisis is another story.
Critics worry the plan won’t cover what happens if big banks face collapse simultaneously.
I’m Bob Moon for Marketplace.
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