Fed, FDIC plan for living wills sparks debate about best approach

By Kyle Campbell

New guidelines are coming for how large regional banks should prepare themselves for bankruptcies, but some policy experts are already questioning if they will go far enough. The Federal Reserve and the Federal Deposit Insurance Corp. issued a joint statement Friday that they will provide guidance on resolution planning for banks that have at least $250 billion in assets but do not qualify as too-big-to-fail….Karen Petrou, co-founder of Federal Financial Analytics, said it is difficult to read too much into what the Fed and FDIC have in mind about specific changes to their resolution plan policies. She said it is likely that Category II and Category III banks will face more scrutiny than they currently do, albeit not as much as the G-SIBs, but little is clear beyond that. Overall, Petrou said she supports a resolution planning framework that is conducted in an orderly fashion for all relevant institutions, which the agencies seem to be calling for, rather than the current regime, which places greater scrutiny on merging firms. “That is an appropriate approach, it’s good governance,” Petrou said. “If you were doing it on a deal-by-deal basis, based on a policy issue that cuts across regional banks, it’s really unfair to target one or another bank. This needs to be done across the sector.”