27 January 2013

FT: US regulators warn banks on living wills

US regulators have warned banks not to assume that countries will work together to avoid the catastrophic failure of a financial group. The alert to the world's biggest international financial institutions followed growing concerns about the progress of global regulatory reform efforts.

The guidance to banks preparing “living wills” to ensure a more orderly wind-down in a future Lehman Brothers scenario came as the Financial Stability Board, a group of central bankers and regulators, prepares to meet on Monday to discuss the resolution regime.

New versions of the living wills, or resolution plans, are due to be filed in the summer. The Federal Reserve and Federal Deposit Insurance Corporation have told banks that they should not do as many did in the first round last year and count on regulators to co-operate.

The Group of 20 leading economies agreed far-reaching financial regulatory reforms in 2009 but progress has since been uneven.

Insufficient coordination between different regions of the world, particularly over resolution planning, was one of the key topics at the so-called financial governors meeting held on Thursday at the Davos World Economic Forum. The private meeting, co-chaired by Deutsche Bank co-chief executive Anshu Jain and Martin Senn, who heads Zurich, gathered some of the world’s senior bankers and regulators, including incoming Bank of England governor Mark Carney, to discuss big-picture issues for the financial services industry.

Despite complaining about several issues – the combined weight of the regulatory change and the burden of punishments for past scandals, as well as poor global co-operation of regulatory issues from resolution to Basel III implementation – bankers said there was also a tone of optimism at the meeting. “Coordination has been poor and the regulatory burden has hurt the economy”, one participant said. “But it’s clear that regulators are listening now and moderating their approach.”

In the first living wills requested by US authorities, many banks, ranging from Goldman Sachs to Deutsche Bank, specifically assumed that regulators would co-operate, according to the public portion of the documents, which were published last year. However, despite bankers’ disquiet at the guidance, several executives said they were optimistic that work between the UK and US could ultimately lead to a viable system.

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