As part of Dodd-Frank, systemically important financial institutions (SIFIs) had to put out “living wills” that explained how they would wind themselves down with the least overall disruption in the event of their failure. This was a contested proposition in Dodd-Frank, because many made the compelling point that a megabank with important connections all over the world, including places where the US had no jurisdiction, would basically be impossible to wind down. But the FDIC insisted that they could get this done with the cooperation of the industry in determining the best course of action.
Now the FDIC has released portions of the living wills to the public for firms like Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and UBS. Some of those firms aren’t headquartered in the US, so one assumes this would cover their US operations. These are the public sections of the living wills, and there are still also confidential sections that have not been released.
Here’s a representative sample, from Goldman Sachs Bank USA, the FDIC-insured bank that’s part of the Goldman Sachs empire. It includes their revenue, assets and liabilities, then sketches a scenario where the bank falls into the resolution authority of the FDIC. It really says quite little about that; most of the document is taken up listing assets, equity, capital ratios, personnel and board members. At the end, they write:
The Bank has therefore developed resolution strategies, under the baseline assumptions, for the rapid and orderly sale or disposition of its Core Business Lines and major assets in a manner that:
• Would not be expected to impact the Deposit Insurance Fund
• Is designed to ensure that depositors receive access to their insured deposits within one business day of the Bank’s failure (two business days if the failure occurs on a day other than Friday)
• Maximizes the net present value return from the sale or disposition of assets
• Minimizes the amount of any loss realized by the creditors in the resolution
So the public document really just says “we think you could do this.” I sure hope the confidential section provides more of a road map.
Other public documents went into a bit more detail, as the Wall Street Journal summarizes:
At least one firm identified hedge funds as potential buyers of its assets, while a competitor said the world’s biggest banks and brokerages were the natural buyers. One bank argued for a quick sale of its brokerage businesses, while another firm backed quick piecemeal sales of all its business lines to avoid liquidation of the whole institution [...]
Some banks told regulators their living wills are proprietary information that they didn’t want to fall into the hands of competitors, according to an FDIC official.
I think the banks took the challenge of writing a living will as an opportunity to promote what an attractive setup they have and what a great business opportunity it would be for investors to purchase them. That kind of misses the point. The living wills were supposed to give regulators all the information necessary to unwind firms in a manner that didn’t disrupt the global economy. I appreciate some public release, but I’m not sure it tells us much of anything. And the FDIC has an option here: they can reject the plans, and ask for something with more detail.