Can ‘Living Wills’ Help Resolve Big Institutions?

By Joe Adler


While lawmakers consider whether to require systemically important firms to draft their own advance resolution plans — dubbed “living wills” — the utility of such outlines is already a matter of fierce debate. Under legislation to create a regulatory regime for systemic firms, companies would have to submit regular wind-down plans to the government, giving regulators a road map of how they should be taken apart in a crisis without harming the financial system. But several observers question whether such a guide would really be followed if another crisis hits. “There would need to be a clear plan of counterparty demands so that the regulator knows what funds might leave under stressed situations,” said Karen Shaw Petrou, the managing partner at Federal Financial Analytics Inc. “If it does what it should, then” the living will “could not be thrown out in a crisis, because it would ease crisis resolution, and hopefully reduce resolution costs.”