The living wills prepared by major financial institutions in compliance with the 2010 Dodd-Frank Act are shockingly incomplete and flawed in one crucial aspect: They neglect to explain how cross- border assets and liabilities would be handled in different legal jurisdictions, according to a Bloomberg News commentary yesterday. The plans should be rejected by officials, according to the commentary, and sent back to the banks to be revised. Ignoring cross-border issues is akin to planting a poison pill in the heart of these living wills, according to the commentary. When the time comes to wind down a failing megabank, the complexities and potentially dangerous domino effects surrounding the failure of a cross-border institution are likely to increase pressure for a bailout that will protect creditors, and perhaps shareholders and executives, too.
