The FDIC has unanimously approved two sets of guidelines laying out what the largest and most complex financial firms must include in their so-called living wills.
Under the Dodd-Frank Act, banks are required to file resolution plans with the in order to protect the broader economy in the event of their own collapse. The Federal Deposit Insurance Corporation’s decision “markets an important turning point in the FDIC’s implementation of its systemic resolution responsibilities,” granted by the financial reform act, according to Martin J. Gruenberg, acting chairman of the FDIC. The Fed still has to approve the living-wills rule before it can be implemented.
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The new rules are designed in order to eliminate the need for the sort of large-scale bailouts paid for by American taxpayers during the Financial Crisis. The rules give the FDIC the power to liquidate large firms should their failure threaten the U.S. financial system. For that reason, banks with at least $50 billion in assets will have to file plans, or “living wills”, as will any other institution considered systemically important by the Financial Stability Oversight Council.
Companies with more than $250 billion in non-bank assets will be required to file their plans by July 1, 2012, while those with $100 billion to $250 billion in non-bank assets won’t be required to file until July 1, 2013. All other firms will be required to submit their plans by December 2013.
Along with their living wills, FDIC-insured banks with more than $50 billion in assets will also have to file a separate plan with the FDIC. This FDIC has been working on this second rule, which would apply to 37 banks and thrifts, since before the completion of the Dodd-Frank Act. Of those 37 firms, 34 would also be required to file resolution plans with the Fed because of the size of their parent companies.
With the first deadline less than a year away, banks like Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C) will be busy preparing their resolution plans. Many banks have been involved in the process of outlining the new rules, with many voicing concern, through executives and lobbyists, about the confidentiality of proprietary information, and seeking clarity on the rules.