Living Wills Are Due for Some on July 1, But FDIC’s Hoenig Sees No Cure-All

By Victoria McGrane

Some of the biggest banks are being asked to submit by July 1 road maps for how they can be quickly and cleanly liquidated, but a top regulator said he doesn’t back using the so-called living-will process to break them up. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., also doesn’t think that the new regulatory process will end “too big to fail”—the expectation that the government will bail out faltering financial firms rather than risk the damage their failure would inflict on the system. “I want it to have good results, but it will not be the cure-all,” Mr. Hoenig said in an interview. Some analysts believe regulators will want to prove they are killing too big to fail by forcing some of the big banks to make painful changes. If the regulators don’t use the power given to them to force the biggest banks to reduce their complexity in a public manner relatively soon, Dodd-Frank critics “will assert, with some merit, that the resolution regime is toothless,” Karen Shaw Petrou, managing partner of consultant Federal Financial Analytics, wrote in a recent client note. “Knowing this, the regulators will take a bite out of someone.”