The New Plan to Bail Out ‘Too-Big-to-Fail’ Banks
By John Carney
Regulators want to prevent taxpayers from having to ever again bail out big banks. Their latest idea: make the banks bail themselves out. Previously, banks had struggled to persuade regulators they had a plan—called a “living will”—that would allow them to be dismantled and shut down if they got into trouble without taxpayers taking a hit. Now, banks are creating new structures that would allow their most important parts to keep functioning, even if the parent company has to file for bankruptcy. The aim is to avoid the kind of market chaos that could cause economic harm.  To this end, there was a small structural change in the public portions of living wills released last week by the biggest U.S. banks. This involved the creation of a holding company to sit between the shareholder-owned parent company and its subsidiaries…. The change could cause unease among regulators outside the U.S. It potentially could lead banks to keep less capital at overseas subsidiaries and make it less likely they would support all their global operations in times of trouble. The upshot could be a push by non-U.S. regulators to require banks to provide additional support locally for subsidiaries. That would mirror the approach U.S. regulators have taken toward the subsidiaries of foreign banks. “The best and most transparent way to deal with this would be an international agreement among regulators,” said Karen Petrou of research and advisory firm Federal Financial Analytics. “But those efforts have failed. Regulators can’t agree. Each, quite reasonably, wants to protect the interests and financial systems of their home country.”