It has recently been reported that Big Banks must have ‘living wills’ in place by July, 2012.  In estate planning circles, a “living will” is a document one creates in the event they should later become incapacitated or incompetent, and are unable to make important decisions for their long term care.  More to the point of the article – apparently the FDIC had unanimously voted to require banks with $50 billion or more in assets to prepare and submit these so-called “living wills” to “…ensure comprehensive and coordinated resolution planning for both the insured depository and its holding company and affiliates in the event that an orderly liquidation is required….” This,  according to FDIC chairman Martin Gruenberg.

In the case of the Big Banks, the idea here is to avoid a repeat of the Bear Stearns and Lehman Bros. debacles that occurred in 2008, setting off a chain reaction and causing credit to seize up to the point of nearly collapsing our country’s entire financial system.  Several weak banks were either absorbed by more stable ones, filed bankruptcy, or taken over by the FDIC.  Today, some of the country’s largest banks are still struggling.

I guess the thinking is that some Big Banks are still viewed as “systemically important” – using the currently accepted term – rather than those nasty pejoratives “Too Big To Fail” or “TBTF” [an acronym that could refer to any number of expletives about Big Banks. – PCQ]

I find the use of the term “living will” an interesting choice of words, as it tends to humanize Big Banks – a task of Herculean proportions – even Dr. Frankenstein failed on that count.   On the other hand – put yourself in the bankers’ shoes; this whole idea must raise some uncomfortable feelings at the highest executive levels.  I mean, how would you feel, if every time you turned around, someone wanted to perform a “stress test” on you – digitally poking around in one orifice or another?   And then after performing the tests, the examiner promptly suggests that you might want to make arrangements for the time when you can no longer care for yourself.   It’s like facing the Grim Reaper mano a mano.  Does the Fed know something the Big Banks can see but refuse to admit? After reading his patients’ charts, does Dr. Bernanke fear the end is near?  Does he foresee these symbols of wealth and power now becoming “Zombie Banks”? Mere shells of their former selves, soulless, disembodied creatures, aimlessly lurching across the financial landscape, frightening everyone, as they hemorrhage the last vestiges of their life-sustaining cash reserves – this sounds like a scene out of Thriller.   Well, if that’s what’s in store, “Yes!” – By all means, Living Wills are definitely in order!

In an effort to discover what plans some of the Big Banks have made toward drafting their Living Wills, I recruited a trusted associate to see if he might quietly find me a copy of one such document.  I am happy to report that the mission was hugely successful and I am now in possession of one of the few known Living Wills that has been drafted for submission to the FDIC this July.  What appears below is a redacted copy of the original: Continue reading “‘Living Wills’ For Big Banks?”