New Idea for Unwinding Big Banks May Be as Hard to Sell as It Is to Pronounce

By Joe Adler

In the absence of global resolution rules, a hard-to-pronounce buzzword has crept into the debate on winding down big banks: subsidiarization. The concept, which has been practiced to some extent in other countries, broadly means giant firms putting their many international business lines into clear-cut subsidiaries instead of less distinct branches, making it easier to unwind them in a resolution. The topic drew attention earlier this month at a Federal Deposit Insurance Corp. roundtable on the agency’s new resolution powers, and officials sounded interested in the idea. After last week’s summit of the Group of 20 nations failed to produce any other formal process for resolving multijurisdictional firms, observers said subsidiarization, despite its drawbacks, may gain more traction. “If you cannot come up with a satisfactory cross-border resolution regime for branched and complex institutions, then subsidiarization is your default choice, even though it’s understood to be a costly and problematic one,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc.