Bloomberg News

Financial-Industry Groups Urge Delay of U.S. Resolution Rules

June 10, 2011

June 10 (Bloomberg) -- Lobby groups representing some of the world’s biggest financial companies want U.S. regulators to delay rules that would govern resolutions of systemically risky firms to allow more time to review and revise the proposal.

The Federal Reserve and the Federal Deposit Insurance Corp. must clarify what constitutes a “credible” plan for unwinding a complex firm before requiring companies to file so-called living wills, six groups including the Securities Industry and Financial Markets Association and the Institute of International Bankers said in a letter to the regulators, according to a copy obtained by Bloomberg News.

“There are potentially severe business-model and competitive consequences to any financial firm if the Federal Reserve and the Federal Deposit Insurance Corp. were to jointly determine that the company’s resolution plan is ‘not credible,’” the groups said in the letter, which they plan to send to the agencies today. “Supervisors should not create a system that manages for failure rather than for success.”

The Dodd-Frank Act requires firms deemed systemically important to file plans with the Fed and the FDIC for how they could be unwound in event of their failure. Lawmakers gave the FDIC resolution authority for shutdowns of complex firms aiming to prevent a repeat of the market tumult that followed the September 2008 bankruptcy of Lehman Brothers Holdings Inc.

The groups, representing firms including JPMorgan Chase & Co, BlackRock Inc., Bank of New York Mellon, Royal Bank of Scotland Group PLC and Deutsche Bank AG, urged regulators to push back implementation of the rules from next month to as late as January of next year.

Workable Plans

Under the living-wills provision, companies with at least $50 billion in assets will have to provide information on their debt, funding, capital and cash flows. Firms that fail to file workable plans for unwinding their business could be subject to increased capital, leverage or liquidity requirements as well as restrictions on their growth, activities or operations.

“One of the challenges in the resolution-planning process is that a financial business should be managed to optimize capital information, prudent maturity transformation and economic growth as a going concern, rather than for failure as a gone concern,” the organizations wrote in the 53-page letter addressed to the Fed and the FDIC.

In addition to Sifma and IIB, signers included the Clearing House Association, the American Bankers Association, the Association for Financial Markets in Europe and the Financial Services Roundtable.

Broader Pushback

Financial-industry criticism of the living-wills measure is part of a broader pushback against Dodd-Frank, the regulatory overhaul enacted in response to the worst financial crisis since the Great Depression. JPMorgan Chief Executive Officer Jamie Dimon questioned Fed Chairman Ben S. Bernanke at a public forum on June 7 over whether new rules may threaten economic growth.

In today’s letter, the industry groups cited concerns about confidentiality of the information companies will have to give regulators as part of the resolution plans.

“We realize that the Freedom of Information Act or FOIA will apply to data submitted in resolution plans and credit- exposure reports, making it critical that the information submitted be treated as an integral part of the examination process and subject to similar protections,” the organization said in the letter. “Resolution plans and credit-exposure reports should therefore be made subject to the strongest FOIA protection available.”

Bloomberg LP, the parent company of Bloomberg News, is a member of the Association for Financial Markets in Europe. Bloomberg Tradebook LLC is a member of Sifma.

--Editor: Gregory Mott

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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