TRENDS | US BANKING
In August the Fed and the FDIC rejected the “living wills”—guides to unwinding assets in the event of bankruptcy—of 11 of the biggest banks operating in the US. The regulators ordered the banks, including Citi, Goldman Sachs and Barclays, to rewrite their living wills on grounds that they were based on “unrealistic assumptions” about the amounts of capital required to unwind them.
But the capital requirements for banks’ living wills, as spelled out in the Dodd–Frank Act, have not been decided yet. So the banks were left to guess what the new numbers would be, explains Brian Kleinhanzl, a director at boutique investment bank KBW.
Ultimately, regulators are likely to accept revisions of the living wills, predicts Mark Calabria, a director at the Cato Institute. “The regulators are currently under a lot of pressure to get tough and look like they are ending ‘Too Big to Fail,’” says Calabria. “This rejection is part of that—just optics meant to spin the public.”