Bloomberg News

Fed Approves Final Rule on Banks’ ‘Living Will’ Wind-down Plans

October 17, 2011

Oct. 17 (Bloomberg) -- The Federal Reserve approved a final rule implementing the Dodd-Frank Act’s requirement that the largest bank holding companies design a plan in the event of their own bankruptcy.

The so-called living wills must “describe the company’s strategy for rapid and orderly resolution in bankruptcy during times of financial distress,” the Fed said today in a statement in Washington.

The Federal Deposit Insurance Corp. board voted unanimously on Sept. 13 to release a joint final rule laying out what the largest and most complex financial firms must include in living wills.

Congress, in the Dodd-Frank Act, expanded regulators’ authority to seize and unwind lenders in response to the market tumult that followed the September 2008 bankruptcy of Lehman Brothers Holdings Inc. The new rules are designed to eliminate the need for bailouts by giving the FDIC power to liquidate large firms whose failure could threaten the financial system.

The largest U.S. banks, including Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp., will have to develop annual strategic plans that describe the specific actions the companies would have to take in resolution. The plans must also describe the company’s organizational structure and its interconnections to other firms, according to the Fed.

Companies will submit their plans on a staggered basis, the Fed said. Those with over $250 billion in assets will generally be required to submit plans by July 1, 2012 with smaller banks having a longer time frame.

--Editors: James L Tyson, Gail DeGeorge

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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