The FDIC unanimously approved two sets of rules on Tuesday that aim to wipe out the notion that Wall Street is too big to fail.
The rules mandate so-called living wills for the largest financial firms in the United States, NYTimes.com reports.
One rule requires all bank holding companies that present a systemic risk to the economy to provide detailed plans for how they would unwind their business through bankruptcy in the case that the recent history of failing banks repeats itself.
“It’s a preventative tool,” Thomas P. Vartanian, a former regulator who is now a partner at the law firm Dechert, said, according to NYTimes.com. “This will help the regulators be more nimble.”
Another rule requires the depository arms for the 37 banks that hold more than $50 billion in total assets to create separate contingency plans.
The contingency plans would allow the FDIC to dismantle the banks outside the bankruptcy process, NYTimes.com reports. The agency’s goal is to prevent a repeat of the hectic Lehman Brothers bankruptcy.
“These two rules will ensure the comprehensive and coordinated resolution planning for both the insured depository and its holding company and affiliates in the event that an orderly liquidation is required,” Martin Gruenberg, FDIC’s acting chairman said, according to NYTimes.com.
The FDIC agreed to phase out due dates for the living wills. The largest banks and financial firms will be required to file their paperwork first.