Comments about living wills

1. Banks, Insurers Resist U.S. ‘Funeral Plan’ Crisis Breakup Rules*
2011‐03‐23 04:01:00.9 GMT
By Rebecca Christie and Ian Katz
March 23 (Bloomberg) ‐‐ Banks and insurers are pushing back against U.S.
rules that will require some financial companies to show how they can be
dismantled during a crisis.
Under the so‐called living will plans, firms might have to divide
themselves into separate entities that could be sold if the company were in
danger of failing. Such break‐up plans are costly and would hurt financial
companies by forcing them into illogical management structures, industry groups
say.
“Managing a big, complex, global entity by splitting it up into all kinds
of jurisdictional boxes is far from ideal,” Eugene A. Ludwig, chief executive
officer at Promontory Financial Group, a Washington‐based financial consultant,
said in an interview. “It doesn’t make things safer. It makes things less safe by
depriving supervisors of a clear line of sight into the workings of the company.”
Regulators say they need an orderly wind‐down mechanism to avoid a repeat
of the panic that gripped markets when Bear Stearns Cos., American International
Group Inc., and Lehman Brothers Holdings Inc. floundered in 2008. Proposed rules
on living wills, due from the Federal Reserve and Federal Deposit Insurance Corp.
as soon as next week, are part of the debate between Wall Street and Washington
over how tightly firms should be supervised and how the markets will react to
such scrutiny.
Lobby groups including the American Bankers Association are voicing concern
to regulators in a series of comment letters seeking to limit the impact of the
new rules. JPMorgan Chase & Co. and New York‐based insurer MetLife Inc. have
discussed so‐ called resolution, or the unwinding process, with FDIC officials.
Detailed Rule
FDIC Chairman Sheila Bair is defending the need for a detailed rule. Bair
and Fed Governor Daniel Tarullo are scheduled to discuss the issue in a meeting
as soon as today, as their staffs prepare the draft regulations, a person
familiar with the matter said.
“The planning process in itself for some institutions will require
structural changes,” Bair said in an interview with Bloomberg News at a
conference in San Diego yesterday. A company will have to determine “how it is
organized, how it could be broken up and sold off in pieces if the need occurred,
and I think none of that really has happened yet,” she said.
The Dodd‐Frank act passed last year says companies whose failure could
threaten the financial system must design a living will. While the law can’t be
changed without action by Congress, regulators have leeway in how it’s
implemented. Bair said yesterday the FDIC will consider a proposed rule on living
wills next week.

2. Paying Attention
Douglas Elliott, an economic studies fellow at the Brookings Institution in
Washington, said that living wills are “useful, partly because neither the banks
nor the regulators were paying sufficient attention to this.”
“If there had been a funeral plan for Lehman, I’m sure things would have
proceeded significantly more smoothly,” said Elliott, a former managing director
at JPMorgan.
Since November, representatives from companies including JPMorgan,
Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley, Fidelity Investments,
BlackRock Inc., Barclays Plc, Credit Suisse Group AG and Deutsche Bank AG have
met with Fed or Treasury Department officials to discuss issues related to
systemic risk, according to records released by regulators.
A living will is an “enormous burden” that puts banks on a course “that
differs dramatically from the way they currently look at their business,” said
Mark Tenhundfeld, senior vice president at the American Bankers Association.
Smaller Subsidiaries
The break‐up process, sometimes called subsidiarization or ring‐fencing,
can involve requiring banks to turn different business lines and foreign branches
into stand‐alone subsidiaries.
Keeping separate boards of directors and management teams, and
distinguishing capital and liquidity for different entities would be costly for
banks, said Promontory’s Ludwig, a former Comptroller of the Currency under
President Bill Clinton.
The Financial Stability Oversight Council, charged with averting a repeat
of the 2008 financial crisis, will ask firms for data so that it can start
deciding by midyear which non‐bank financial companies are “systemically
important,” or pose a potential threat to the system.
Bair, one of the FSOC’s 10 voting members, said she wants to be sure no
systemically important firms are overlooked.
Resolution Planning
“At least in terms of resolution planning, I would err on the side of
inclusiveness,” Bair told the Senate Banking Committee Feb. 17.
Regulators will review the plans and ask banks to correct any deficiencies
found, Bair said. If banks don’t comply, the Fed and the FDIC have the authority
to impose tougher capital, leverage and liquidity requirements, along with
restrictions on growth, activities or operations.
“In certain cases, divestiture of portions of the financial company may be
required,” said Bair, who steps down as FDIC chairman in June.
Companies are also concerned about whether the information in their living
wills can be kept confidential, said Annette Nazareth, a partner at Davis Polk &
Wardwell LLP in Washington and a former Securities and Exchange Commission
member.
“For firms that have never provided this level of granular business data to
a governmental entity, it is really quite concerning,” Nazareth said March 8 at a
National Association for Business Economics conference in Washington.

3. MetLife, FDIC
MetLife executives who met with FDIC officials in December said they had
concerns related to the agency’s authority to wind down companies, according to a
document on the FDIC website. The executives pointed out that banks and insurers
have different asset and capital structures. JPMorgan spokesman Howard Opinsky
declined to comment on the firm’s meetings with FDIC officials.
An 80‐page preliminary draft report by the oversight council’s staff
suggests that hedge funds, asset managers and insurers may face detailed requests
for data they previously didn’t have to release. Without making recommendations,
the Feb.
3 study offers a glimpse of issues council members, including Fed Chairman Ben S.
Bernanke and Treasury Secretary Timothy F.
Geithner, will consider when deciding which companies get the “systemically
important” designation.
Representatives for the American Insurance Association met with Fed
officials last month to discuss systemic‐risk regulation, according to the
central bank’s website.
U.S. insurers already are “subject to a thorough and well‐ tested
regulatory regime” managed by state insurance companies, another trade group, the
American Council of Life Insurers, said in a Feb. 25 letter to Geithner, the
FSOC’s chairman.
Minimum Capital
“There is a well‐developed resolution process for insurance companies that
fall below minimum capital requirements” that leads to an orderly liquidation
when necessary, Julie Spiezio, the group’s deputy general counsel, said in the
letter.
The FSOC draft report, obtained by Bloomberg News, included a slate of
proposed metrics that supervisors might use to assess whether banks are
systemically important. For example, regulators could look at how many existing
regulators a broker‐ dealer has and what recourse is already available to
investors in an asset‐management firm, according to the draft report.
The council may begin making its designations of non‐bank financial
companies by midyear, Bernanke told the House Financial Services Committee on
March 2. Geithner suggested in September that such a list could encompass New
York‐based AIG, the bailed‐out insurer, and GE Capital, a unit of Fairfield,
Connecticut‐based General Electric Co. that benefited from a government backstop
for financial‐company debt.
U.S. bank holding companies with more than $50 billion in assets ‐‐
including JPMorgan, Bank of America Corp., Citigroup and Goldman Sachs ‐‐ are
automatically designated systemically important.
For Related News and Information:
For news on the credit crisis: NI CRUNCH BN <GO> For finance news: NI FIN <GO>
Most‐read stories on the U.S. Treasury: TNI MOSTREAD TRE <GO> Treasury stories:
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‐‐With assistance from Meera Louis in San Diego. Editors: Kevin Costelloe,
Brendan Murray

4. To contact the reporters on this story:
Rebecca Christie in Washington at +1‐202‐654‐1273 <tel:%2B1‐202‐654‐1273> or
rchristie4@bloomberg.net <mailto:rchristie4@bloomberg.net>;
Ian Katz in Washington at +1‐202‐624‐1827 <tel:%2B1‐202‐624‐1827> or
ikatz2@bloomberg.net <mailto:ikatz2@bloomberg.net>
To contact the editors responsible for this story:
Christopher Wellisz at +1‐202‐624‐1862 <tel:%2B1‐202‐624‐1862> or
cwellisz@bloomberg.net <mailto:cwellisz@bloomberg.net>