The U.S. Federal Reserve Board Monday announced the approval of a final rule requiring large banks to maintain “living wills”.
The final rule requires bank holding companies with assets of US$50 billion or more, and nonbank financial firms designated by the Financial Stability Oversight Council for supervision, to annually submit resolution plans to the Fed and the Federal Deposit Insurance Corp. Each plan will set out the company’s strategy for rapid and orderly resolution in bankruptcy during times of financial distress.
The aim of the rule is to ensure that large financial institutions can be allowed to fail without triggering chaos in the financial markets generally, as happened when the Wall Street investment bank Lehman Brothers was allowed to fail in late 2008.
The Fed says that a resolution plan must include a strategic analysis of the plan’s components, a description of the range of specific actions the company proposes to take to wind up the firm, and a description of the company’s organizational structure, material entities, interconnections and interdependencies, and management information systems.
Under the final rule, companies will submit their initial resolution plans on a staggered basis. The first group of companies, generally those with US$250 billion or more in non-bank assets, must submit their initial plans by July 1, 2012; firms with between US$100 billion and US$250 billion in assets, are required to submit their plans by July 1, 2013; and the remaining companies, must deliver plans by December 31, 2013.