Big Banks’ Living Wills Are D.O.A.

The Federal Reserve and FDIC just released the “living wills” of the first 9 US and foreign banks (out of an expected total of 125) to have submitted them pursuant to Dodd-Frank.  A bank’s living will is supposed to spell out exactly how regulators could halt its business operations and sell its assets without requiring taxpayer bailouts should the bank face financial collapse. The big banks, however, are such complex, global institutions and are so intertwined with one another that none of them could be neatly unwound unless its failure occurred during a period of market calm.  Otherwise, none of the other institutions that would or could buy its assets would dare to do so.   In sum, the banks’ living wills are considered “nice exercises,” but no one seems to regard them as a panacea against “too big to fail.”