FDIC Chairman Gruenberg: Regulator to issue guidance on living wills ahead of deadline

150px-US-FDIC-Logo.svgFDIC Chairman Martin Gruenberg said that the regulator will issue additional guidance to provide banks with more information on how to assemble “living wills,” banks’ emergency exit strategies to be used in the event of their failure.

JPMorgan Chase and Bank of America are required to provide a second set of living wills, and the banking industry has awaited guidance from the regulator over plans they submitted last year. Gruenberg said that the FDIC will provide additional guidance to prepare the banks for the July 1 deadline for the submission of living wills, Bloomberg reports.

Gruenberg said big banks have requested more information on the emergency exit plans but added that the regulator will have to collaborate with the Federal Reserve on potential guidance. He also said that 11 banks in the top asset tier will not have the safety net they had last year, when regulators said that living wills would not be rejected if they were not reasonable.

The Dodd-Frank Act mandated that banks compile detailed plans to be implemented in the event of their failure and to file those strategies with regulators. Though living wills will push banks through court-led bankruptcy proceedings, the FDIC is also authorized as the receiver of failing banks that cannot be wound down safely by the court system, according to Bloomberg.

Living wills are intended to provide regulators with a plan to wind down and dismantle failing financial firms without using taxpayer-funded bailouts or creating the financial instability that resulted after the 2008 collapse of Lehman Brothers.

John Corston, a director at Deloitte & Touche who works on living wills, said that banks are “frustrated” because they are “not totally clear how they did” in the first round of living wills, adding that he’d be surprised if the next round of living wills was subject to more stringent standards, Bloomberg reports.

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