Clarification on Living Wills and the "Orderly Liquidation Process"
June 16, 2011
I believe Allan Sloan and I were talking past each other when he interviewed me for his column (Wall Street Living Wills Doomed to Fail, June 15, 2011). Perhaps that's because we spoke on a Sunday evening after dinner and a long work week. In any event, I want to make absolutely clear that I view resolution plans as a vital part of ensuring that the largest financial companies can be resolved in an orderly way, consistent with the process and tools the FDIC has long used to close insured banks. As part of this resolution planning, there may be a need for corporate simplification and restructuring or even divestiture, in order to achieve a viable, credible resolution plan. I understand the sentiment — which he clearly reflects in his column — that we should just "break them up" now, but that is not realistic. However, we do have the tools to make these complex behemoths simplify and rationalize their legal structures with their business lines so that if and when they get into trouble, their individual business units can be quickly broken apart and sold off into the private sector.
I agree that it will take courage on the part of the federal regulators to force structural changes now that will assure smooth resolutions down the road. But I believe both the FDIC and FRB are resolute in ending taxpayer bailouts for good. Dismissing living wills and the "orderly liquidation process" under Dodd–Frank undermines the efforts of the FDIC and other regulators to end Too Big to Fail and provides fodder for the naysayers that have an interest in perpetuating bailouts.