July 1 deadline set for living wills from America’s nine largest banks

U.S. regulators have requested that nine of America’s largest banks submit “living wills,” emergency plans to be implemented in order to wind down the bank in the event of the institution’s failure.

The 2010 Dodd-Frank Act granted regulators the resolution authority, or the ability to liquidate failing financial institutions. Proponents of the provision maintain that it helps to address the nation’s too-big-to-fail problem and would prevent another financial crisis, but critics have voiced concerns regarding the feasibility of the plan, Public Radio International reports.

Citigroup, Bank of America, JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs are among the U.S.-based banks required to submit living wills to the Federal Deposit Insurance Corp. and Federal Reserve by July 1.

Amy Friend, the managing director of Promontory Financial, said the living wills are “how-to guides” for dismantling banks in a methodical and organized way.

“This is a way of suggesting to the marketplace that these companies are not going to be propped up,” Friend said, according to PRI. “There is this organized way to let them fail without having shocks sort of ripple through the financial system, which is what we saw during the [2008] crisis.”

Friend, who also served as chief counsel to the Senate Banking Committee when Dodd-Frank was being crafted, said that, in including the living wills, Congress intended to better prepare itself for the worst-case scenario.

“I think what Congress is trying to say is, ‘We saw what happens when you don’t plan and we don’t want to go through that again, so let’s try something different,’” Friend said, PRI reports. “It won’t be easy, but it’s better than what we faced four years ago.”

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