FDIC approves rule forcing banks to write ‘living wills’

WASHINGTON ó The Federal Deposit Insurance Corp. on Tuesday approved a rule requiring the nation’s largest banks to submit “living wills” to help regulators shut them down in an orderly way if they are seized on the brink of failure.|By Jim Puzzanghera, Los Angeles Times

The requirement was a key component of last year’s sweeping overhaul of financial regulations and is designed to prevent the chaos that took place during the 2008 financial crisis. An attempt to avoid damage to the financial system, the law requires the largest banks and financial firms to have liquidation plans in place so that regulators could seize and shut them down in a more orderly way than a traditional bankruptcy.

The interim final rule approved by the FDIC board Tuesday applies to the 37 U.S. banks with more than $50 billion in total assets. They include Bank of America Corp., JPMorgan Chase&Co., Citigroup Inc. and Wells Fargo&Co.

“Since the recent financial crisis began in late 2008, financial authorities throughout the world have recognized and agreed that advance planning for the resolution of large, complex financial institutions is critical to minimizing the disruption that a failure of such an institution may have as well as the costs of its resolution,” the FDIC said in its 58-page interim final rule.

The public has 60 days to comment on the rule, which would take effect on Jan. 1. The largest of those 37 banks must submit their resolution plans by July 1, 2012.

The plans, which must be updated periodically, will go to the FDIC, the Federal Reserve and the newly created Financial Stability Oversight Council, which is a group of top regulators and financial officials.

The FDIC is working with the Fed and the council on the living will requirements, which will be extended to other large financial firms, such as insurance companies, that are not federally insured banks. There are 124 of those firms.|