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Experts: Living wills may be the end of big banks

Matt McCormick

Financial experts recently warned that banks may actually ensure their future failure through the completion of “living wills,” emergency plans mandated by the 2010 Dodd-Frank Act that are intended to wind down failing financial institutions.

Banks are required to submit the plans, which are supposed to prevent costly taxpayer bailouts, to regulators by Monday. Proponents of Dodd-Frank say that the rules could prevent another financial crisis, but some critics maintain that the government simply wants to break up America’s largest financial institutions.

“If the regulators think about what is happening here, they also might be demoralized by Congress’ lack of faith in them,” Rochdale Securities analyst Dick Bove said in an analysis for clients, according to CNBC. “However, the FDIC enlivened by this legislation has already prepared its prescription of what should be done to dismember large banks.”

Additionally, Dodd-Frank mandated that banks are required to hold additional capital as a buffer against economic stress.

Matt McCormick, a portfolio manager of Bahl & Gaynor, however, said that the extra capital will not always protect against a bailout.

“When you look at a living will on a personal situation, when you implement it, it still results in death,” McCormick said, CNBC reports. “If any one of these banks go out, the consequences for all banks as well as the market are catastrophic.”

McCormick also advocated against the purchase of U.S. financials due to the heightened regulatory pressure.

“My answer is, avoid them,” McCormick said, according to MoneyNews. “Buy the Canadian banks, buy high-quality dividend-paying stocks. You don’t have to own these guys. I don’t want to own something that is already planning for its own demise.”

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