On March 29, 2011, the Federal Deposit Insurance Corporation (“FDIC”) issued a proposed rule initiating a formal process for clarifying the required content of “living wills” for certain large financial companies mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The proposed rule, to be issued jointly with the Federal Reserve Board (“FRB”), implements the requirement of Section 165(d) of Dodd-Frank that certain large financial institutions submit detailed resolution plans and credit exposure reports to the FDIC and the FRB. Under the proposed rule, covered companies would be required to submit and periodically update a detailed strategic analysis of how they could be resolved under the Bankruptcy Code.
The living wills requirement is intended in part to address concerns about institutions that are “too big to fail” by facilitating the ability of regulators to conduct advance resolution planning. It remains unclear whether and to what extent the regulators will also use the living wills as a tool to require restructuring or downsizing where they deem a resolution plan inadequate to address potential systemic risks that would result from an institution’s failure.
This memorandum summarizes the proposed rule and identifies key issues and open questions that financial institutions should be aware of when considering their responses to the proposal.
